The owners of Zume Pizza are disappointed because their new mobile pizza business in Portland has been averaging 5,000 pizza sales per month, but the firm can make and deliver 10,000 pizzas per month. The average variable cost for the ingredients of each pizza and labor to make a pizza is $5.00. The monthly fixed cost for their delivery truck and driver is $10,000 with other fixed costs such as office supplies, advertising, repairs and maintenance, telephone, insurance, interest, licenses, royalties and rent adding another $10,000 per month. The owner wants an analysis of cost information so that some operating decisions can be made.

1. Construct a Contribution Margin Income Statement for the owners for volumes of 4,000; 5,000; and 10,000 pizzas given an average selling price of $10.00

2. The owners have been considering ways to increase sales volume. They think (best case scenario) that 10,000 pizzas could be sold per month by cutting the selling price per pizza from $10.00 to $9.00. How much extra profit (above the current level of 5,000 pizzas at $10 per pizza) would be generated if the selling price were to be decreased and 10,000 pizzas could be sold? 3. Develop two more scenarios that you think would help the owners make a decision about the price cut. Present your scenarios using a Contribution Margin Income Statement and give an explanation showing how the scenarios would help the owners.

4. Write a business memo for the owners of Zume Pizza explaining why or why not they should decrease the price for a pizza. Support your answer using the calculations from parts 1 to 3. Also explain what other factors the owners should take into consideration, as well as some possible risks.