break even analysis
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Break Even Analysis. Conduct A Breakeven Analysis. XYZ Nonprofit decides to use its existing kitchen space to open a pizza delivery business for corporate accounts. The standard price of a pizza with regular delivery is $13.00. Ingredients for one pizza are - PowerPoint PPT PresentationTRANSCRIPT
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Virtue Ventures 2007
Break Even Analysis
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2Virtue Ventures 2007
Conduct A Breakeven Analysis
XYZ Nonprofit decides to use its existing kitchen space to opena pizza delivery business for corporate accounts. The standard price
of a pizza with regular delivery is $13.00. Ingredients for one pizza areestimated to cost $1.75/pizza. The nonprofit will hire a manager at
$35,000/year as well as drivers to deliver its pizzas. Commission todrivers on each pizza delivered is $2.00/pizza. The company will
conduct a direct mail campaign that is estimated to cost $15,000. Thenonprofit’s market research indicates that there are approximately
3000 potential corporate accounts and that each successfullywooed account would purchase, on average, .45 pizzas per day.
Should XYZ Nonprofit pursue this opportunity?How many pizzas need to be sold to breakeven?
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3Virtue Ventures 2007
Conduct A Breakeven Analysis
1. Figure the contribution margin (CM). 3. Determine the breakeven point.CM = Selling Price - Variable Costs BE=Fixed Costs/CMSelling Price BE=$50,000/$9.25=5,405 pizzasStandard Price $13.00
$13.00 4. What does this mean? Is this good or bad?The market potential is…
Variable Costs Possible Accounts 3000Ingredients $1.75 Pizzas/Day x 0.45Commission + $2.00 Business Days/Year x 260
$3.75 Potential Pizza Market Size 351,000
Contribution Margin Share of the market needed to breakeven…Selling Price $13.00 5,405/351,000=1.5% 1.5% of Potential MarketVariable Costs - $3.75 Or 1.5% x 3,000=45 accounts 45 of the potential 3,000
$9.25 accounts are needed tobreakeven.
2. Determine the relevant fixed costs.Fixed CostsManager Salary $35,000Direct Mail Campaign + $15,000
$50,000