Assignment:
The “Metropolitan News” a daily newspaper, serves a community of 100,000. The paper has a circulation of 40,000, with 32,000 copies delivered directly to subscribers. The rate schedule for the paper is
Single issue price: $0.15 daily; $0.30 Sunday
Weekly subscription: $1.00 lincludes daily and Sunday
The paper has experienced profitable operations as can be seen from the income statement for the year ended September 30, 20X3 (in thousands):
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Revenue:
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Newspaper sales
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$2,200
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Advertising sales
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1,800
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$4,000
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Costs and expenses:
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Personnel costs:
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Commissions:
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Carriers
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$ 292
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Sales
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73
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Advertising
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48
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Salaries:
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Administration
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250
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Advertising
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100
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Equipment operators
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500
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Newsroom
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400
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Employee benefits
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195
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$1,858
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Newsprint
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834
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Other supplies
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417
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Repairs
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25
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Depreciation
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180
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Property taxes
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120
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Building rental
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80
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Automobile leases
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10
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Other
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90
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Total costs and expenses
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3,614
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Income before income taxes
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$386
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Income taxes
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154
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Net income
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$ 232
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The Sunday edition usually has twice as many pages as the daily editions. Direct edition variable costs for 20X3-X4 are shown here:
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Cost per Issue |
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Daily
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Sunday
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Paper
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$0.050
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$0.100
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Other Supplies
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0.025
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0.050
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Carrier and Sales Commissions
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0.025
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0.025
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The company has scheduled the following changes in operations for the next year and anticipates some increased costs:
1. The building lease expired on September 30, 20X4, and has been renewed with a change in the rental fee provisions from a straight fee to a fixed fee of $60,000 plus 1 percent of newspaper sales.
2. The advertising department will eliminate the payment of a 4 percent advertising commission on contracts sold on a contract basis in the past. The salaries of the four employees who solicited advertising will be raised from $7,500 each to $14,000 each.
3. Automobiles will no longer be leased. Employees whose jobs require automobiles will use their own and be reimbursed at $0.15 per mile. The leased cars were driven 80,000 miles in 20X3-X4, and it is estimated that the employees will drive some 84,000 miles next year on company business.
4. Cost Increases Estimated for Next Year:
a. Newsprint, $0.01 per daily issue and $0.02 for the Sunday paper
b. Salaries:
i. Equipment operators, 8 percent
ii. Other employees, 6 percent
c. Employee benefits (from 15 percent of personnel costs excluding carrier and sales commissions to 20 percent), 5 percent.
5. Circulation increases of 5 percent in Newsstands and home delivery are anticipated.
6. Advertising revenue is estimated at $1,890,000 with $1,260,000 from employee-solicited contracts.