The Groovy Movie Chains has invested in Italian snack bars for their stores, where individual pizzas are 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 a unit and fixed costs are estimated at $15,000 a year. Based on a desired 12% ROI, what should Groovy Movies charge as the selling price per pizza?

Question

Quizplus · Accepted Answer

First, we need to calculate the total cost per pizza:

Variable costs per pizza = $1.50
Fixed costs per year = $15,000
Total pizzas per year = 12,000

Total cost per pizza = (Variable costs + Fixed costs) / Total pizzas per year
Total cost per pizza = ($1.5 + $15,000) / 12,000
Total cost per pizza = $2

Next, we need to calculate the desired ROI:

Investment cost = $45,000
Desired ROI = 12%

ROI = (Profit / Investment) * 100
Profit = (ROI * Investment) / 100
Profit = (12% * $45,000) / 100
Profit = $5,400

Finally, we can calculate the selling price per pizza:

Selling price per pizza = Total cost per pizza + Profit per pizza
Selling price per pizza = $2 + ($5,400 / 12,000)
Selling price per pizza = $3.20

Therefore, the best choice is C, as it gives the desired 12% ROI.

The Groovy Movie Chains Has Invested in Italian Snack Bars