An education institution is considering the production and marketing of an internal textbook for its students and it does not wish to outsource this process. However, it needs to evaluate the viability of this initiative.
The institution budgets its sales revenue from sales of this book for the first semester (being 6 months) to be R88 000 with 550 students taking the course.
In order to produce this book the following costs will need to be incurred over the first semester:
- Rental of the printing machines @ R2 000 per month.
- Salaries of staff operating the machinery and managing the process @ R6 786 for the entire semester.
- Paper & materials valued at R15 per book.
- Each toner/ink cartridge is expected to cover 120 books printed and each toner/ink cartridge costs R4 800.
- Each book costs R12 to bind.
Required
1 Calculate the following (showing all workings):
a) Selling price per book
b) Total fixed costs
c) The variable costs per book
2 Calculate the number of books the institution would need to sell in order to break even.
3 Using the figure calculated above show the break-even point in rands.
4 Assuming that the institution wants to make a profit of R44 000 in the second semester and the rent is set to increase by 15%, how many books would it then have to sell to achieve this profit.