The Cineplex Movie Theater has invested in a snack bar for its store,where individual pizzas would be prepared and sold.The investment cost the company $45,000.The company expects a sales volume for the new product to be 12,000 pizzas a year.Variable materials,preparation,and marketing costs are expected to be $1.50 per unit and fixed costs are estimated at $15,000 a year.Based on a desired 12% ROI,what should Cineplex charge as the selling price per pizza?

Question

Quizplus · Accepted Answer

To calculate the selling price per pizza, we need to cover the variable costs, fixed costs, and desired return on investment (ROI). The desired ROI is 12% of the $45,000 investment, which is $5,400 annually. The total cost to cover is the sum of fixed costs ($15,000) and desired ROI ($5,400), totaling $20,400. Dividing this by the expected sales volume (12,000 pizzas) gives $1.70 per pizza. Adding the variable cost of $1.50 per pizza results in a total cost of $3.20 per pizza. Thus, the selling price should be $3.20 to achieve the desired ROI.

The Cineplex Movie Theater Has Invested in a Snack Bar