Nick Strizzi owns and operates a pizza delivery and take-out restaurant. In 2013, he sold 100,000 pizzas at an average selling price of $15.00. The cost to make each pizza is $3.00 for cheese, $2.50 for spices, and $3.75 for the crust and other ingredients.
The annual cost of operating the business is as follows:
Rent ............$ 55,000
Salaries ..........$ 230,000
Insurance .........$ 15,000
Advertising ........$ 30,000
Car expenses ......... $ 150,000
The income tax rate for 2013 was 18%. Nick is preparing a projected income statement for 2014. The planning assumptions are as follows:
Increase in number of pizzas sold ........ 10%
Selling price per pizza ........... $ 16.00
Increase in cost of cheese ........... 8%
Increase in cost of spices ........... 5%
Increase in cost of crust and
other ingredients ............. 9%
Annual rent ............... $65,000
Increase in salaries ............12%
Increase in insurance costs .........10%
Advertising costs ............ $35,000
Increase in car expenses ..........15%
Income tax rate ..............17%
1. Prepare Nick Strizzi’s statement of income for 2013 and 2014.
2. Calculate Nick Strizzi’s return on revenue ratios for 2013 and 2014.