Problem: East publishing company is dong an analysis of a proposed new finance text.
Fixed cost edition
|
Development (reviews, class testing and so on) |
|
$18,000 |
|
copyediting |
|
|
|
|
5,000 |
|
selling and promotion |
|
|
|
|
7,000 |
|
typesetting |
|
|
|
|
40,000 |
|
|
total |
|
|
|
|
$70,000 |
|
|
|
|
|
|
|
|
| Variable Costs per copy |
|
|
|
|
|
|
Printing and binding |
|
|
|
|
$4.20 |
|
adminstrative costs |
|
|
|
|
1.6 |
|
Salespeople's commission (2% of selling price) |
|
0.6 |
|
Author's royalties (12% of selling price) |
|
|
3.6 |
|
Bookstore discounts (20% of selling price) |
|
|
6 |
|
|
total |
|
|
|
|
$16.00 |
| Projected selling price |
|
|
|
|
$30.00 |
the company's marginal tax rate is 40%
Q1. Determine the company's breakeven volume for this book
i) in units
ii) in dollar sales
Q2. Develop a breakeven chart for the text
Q3. Determine the number of copies EAST must sell in order to earn an operating profit of $21,000 on this text
Q4. Determine the total operating profits at the following sales levels:
i) 3,000 units
ii) 5,000 units
iii) 10,000 units
Q5. Suppose East feels that $30,000 is too high a price to charge for the new finance text It has examined the competitive market and determined that $24.00 would be a better selling price. What would the breakeven volume be at $24.00 a book?