ProFirm must determine the optimal price for Signature Creation pizzas at Crustopia to achieve break-even profitability. Given fixed costs of $200k and current profits from beverages ($90k) and classic pizzas ($50k), the Signature Creations must generate $60k in contribution profit annually. With 10,000 units sold and variable costs of $22 per unit, the break-even price is $28 per pizza (a $2 increase from the current $26 price).
Key Insights:
- Break-even calculation: (Fixed Costs - Profits from Other Lines) ÷ Units Sold + Variable Costs = ($200k - $90k - $50k) ÷ 10k + $22 = $28
- Signature pizzas have pricing power due to unique offerings and inelastic demand, supporting the $2 price increase
- Beverages have high margins and serve as cross-selling opportunities, making customers less price-sensitive
- Classic pizzas have slim margins due to commoditization and customer price sensitivity from competitor availability
- Volume assumption (no change post-price increase) is critical to the analysis and should be validated