Pizza Pizazz is a local restaurant. Price and cost information follows:

Pizza Pizazz is a local restaurant. Price and cost information follows:

Price per pizza	$	14.31
Variable cost per pizza
Ingredients		2.18
Direct labor		1.17
Overhead (box, etc.)		.23
Fixed cost per month	$	5,043.10

Requirement 1:

Calculate Pizza Pizazz’s new break-even point under each of the following independent scenarios (Round your intermediate calculations to 2 decimal places and final answer up to next whole number.):

a.	Sales price increases by $1.70 per pizza.

Break-even point

406  units

b.	Fixed costs increase by $510.00 per month.

Break-even point

518  units

c.	Variable costs decrease by $.43 per pizza.

Break-even point

452  units

d.	Sales price decreases by $.30 per pizza.

Break-even point

484  units

Requirement 2:

Assume that Pizza Pizazz sold 495 pizzas last month. Calculate the company’s degree of operating leverage. (Round your intermediate calculations and final answer to 2 decimal places)

Degree of operating leverage

19.80

Requirement 3:

Using the degree of operating leverage, calculate the impact on profit caused by a 15.00 percent increase in sales revenue. (Round your intermediate calculations and final answer to 2 decimal places. Omit the "%" sign in your response.)

Effect on profit

297.00  %

Explanation:

1.
a.	New CM	=	$16.01 – $3.58 = $12.43
	Break-even	=	$5,043.10/$12.43
		=	406.00 units (rounded)

 

b.	New fixed cost	=	$5,553.10
	Break-even	=	$5,553.10/$10.73
		=	518.00 units (rounded)

 

c.	New CM	=	$14.31 – $3.15 = $11.16
	Break-even	=	$5,043.10/$11.16
		=	452.00 units (rounded)

 

d.	New CM	=	$14.01 – $3.58 = $10.43
	Break-even	=	$5,043.10/$10.43
		=	484.00 units (rounded)

 

2.

Degree of operating leverage = Contribution margin/Profit

 

Contribution margin (495.00 x $10.73/unit)	$	5,311.35
– Fixed cost		5,043.10
Profit	$	268.25

 

DOL	=	$5,311.35/$268.25
	=	19.80

3:

Effect on profit	=	Change in sales × Degree of operating leverage
	=	15.00% × 19.80
	=	297.00%

 

Thus, a 15.00% increase in sales will result in a 297.00% increase in profit for Pizza Pizzazz.