Edward Cheezer's Inc.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

Edward Cheezer's Inc.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.

Quizplus · Accepted Answer

First, we need to calculate the contribution margin per pizza, which is:
Selling price per pizza - Variable cost per pizza = $10 - $6 = $4.

Next, we need to calculate the total contribution margin required to obtain a monthly profit of $20,000. Since the fixed costs are already given as $10,000, the total required contribution margin is:
Fixed costs + Target profit = $10,000 + $20,000 = $30,000.

Finally, we can calculate the number of pizzas required to generate this contribution margin as follows:
(Number of pizzas) x (Contribution margin per pizza) = Total contribution margin required
(Number of pizzas) x $4 = $30,000
(Number of pizzas) = $30,000 ÷ $4
(Number of pizzas) = 7,500

Therefore, the answer is D, 7,500 pizzas, which must be sold to obtain a monthly profit of $20,000.