Question1: East Publishing Company is doing an analysis of a proposed new finance text book. Using the following information, answer A through D.
Fixed costs per edition:
Development $18,000
Copyediting $ 5,000
Selling/Promo $ 7,000
Typesetting $40,000
Total $70,000
Variable costs per copy
Printing/bind $4.20
Admin costs $1.60
Sales commission $0.06 2% of selling price
Royalties $3.60 12% of selling price
Discounts $6.00 20% of selling price
Total $16.00
Projected selling price $30.00
Tax rate is 40%
Calculate the firm's breakeven volume for the book
In units
In dollar sales
Make a breakeven chart for the text book
Find the number of copies they must sell to earn an operating profit of $21,000 on this book
Assume East feels that $30 is too high a price to charge. It examined the market and determined that dollar 24 would be better. Find the break even volume at the new price?
Question2: Rodney Rogers, a business school grad, plans to open a wholesale dairy products company. The business will be completely financed with equity. Rogers expects first year sales to total $5,500,000. He desires to earn a target pretax profit of $1,000,000 during his first year of operation. Variable costs are 40% of sales.
[A] How large can his fixed operating costs be if he is to meet his profit target?
[B] What is his breakeven level of sales at the level of fixed operating costs determined in [A]?