Edward Cheezer's makes and sells frozen four-cheese pizzas, New York-style. The expected selling price is $10 per pizza. The projected variable cost per pizza is $6. The estimated fixed costs per month are $10,000. The number of pizzas that must be sold to obtain a monthly profit of $20,000 is
A) 2,000 pizzas.
B) 5,000 pizzas.
C) 2,500 pizzas.
D) 7,500 pizzas.

Question

Quizplus · Accepted Answer

To achieve a monthly profit of $20,000, the total contribution margin (selling price - variable cost) must cover both the fixed costs and the desired profit. The contribution margin per pizza is $4 ($10 - $6). The equation is: $4 * number of pizzas = $10,000 (fixed costs) + $20,000 (profit). Solving for the number of pizzas gives 7,500.

Edward Cheezer's Makes and Sells Frozen Four-Cheese Pizzas, New York-Style