Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 55

Special promotion—effects of a 1-cent sale The management of Rocko’s Pizzeria is considering a special promotion for the last two weeks of October, which is normally a relatively low-demand period. The special promotion would involve selling two medium pizzas for the price of one, plus 1 cent. The medium pizza normally sells for $12.99 and has variable expenses of $4.50. Expected sales volume without the special promotion is 600 medium pizzas per week.

Required:

a.Calculate the total contribution margin generated by the normal volume of medium pizzas in a week.

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b. Calculate the total number of medium pizzas that would have to be sold during the 1-cent sale to generate the same amount of contribution margin that results from the normal volume.

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c. What other factors should management consider in evaluating the pros and cons of the special promotion?

Step 1 of 3

The management is considering special promotion in the last two weeks in month of October, comparatively where there is low demand.

The special promotion comprises of the sale of two medium pizzas at the price of one pizza, additional 1cent.

a)

Computation of the total contribution margin created from normal volume of medium pizzas per week.