The basic idea behind doing a break-even analysis is to calculate the point at which revenues begin to exceed costs. To do this, one must first separate a company's costs into those that are variable and those that are fixed. Fixed costs are costs that do not change with the quantity of output and they are not zero when production is zero. Examples of fixed cost include rent, insurance premiums or loan payments. Variable costs are costs that change with the quantity of output. They are zero when production is zero. Examples of common variable costs include raw materials etc.

The Scenario -- Boston Pizza, which sells only pepperoni pizza in this simplified example, has the following expenses:

Flour: $0.50 per pizza

Yeast: $0.05 per pizza

Water: $0.01 per pizza

Advertising: $500 monthly

Utilities: $450 monthly

Cheese: $3.00 per pizza

Pepperoni: $2.00 per pizza

Labor: $1,500 monthly

Rent: $3,000 monthly

Insurance: $200 monthly

1. Please list the Variable Costs and provide a total. (2 marks)

2. Please list the Fixed Costs and provide a total. (2 marks)

3. If the price of a pizza is $10, please calculate the following:

a) the contribution margin (3 marks)

b) How many pizzas does BP need to sell each month at $10 each to cover all those fixed monthly expenses? (3 marks)

Please show your calculations!