Rusty’s Pies is a bakery that services the Helotes area. The company\'s annual f
ID: 2456307 • Letter: R
Question
Rusty’s Pies is a bakery that services the Helotes area. The company's annual fixed costs are $50,000. The sales price averages $15, and it costs the firm $7 to make and deliver each pie.
Required:
A. How many pies must Rusty's sell to break even?
B. How many pies must the company sell to earn a target profit of $100,000?
C. If budgeted sales total 12,000 pies, how much is the company's safety margin in dollars?
D. Rusty's assistant manager, an accounting major, has suggested that the firm should try to increase the contribution margin per pie. Explain the meaning of "contribution margin" in layman's terms.
Explanation / Answer
A)Break even = Fixed cost/ (selling price -cost)
= 50000 /(15 - 7)
= 50000 / 8
= 6250 pies
b)Desired sales (pies ) =(Fixed cost + Tsrgetprofit ) / (price-cost)
= (50000 +100000 ) /(15-7)
= 150000 / 8
= 18750 pies
c)Contribution margin ratio = 8/15 = .5333
Break even point (dollars) =Fixed cost/Contribution margin ratio
= 50000 / .5333
=$ 93750.59
Actual sales =12000 *15= 180000
Margin of safety =actual sales -BEP
= 180000 - 93750.59
= $ 86249.41
D)contribution margin means a difference between a selling price of pie and a variable cost to produce and sell that pie.
Or in simple terms a dollar amount of profit each sale of pie will generate
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