East Publishing Company is doing an analysis of a proposed new finance textbook. Using the following data, answer (1) through (4).
| Fixed Cost per 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 Cost per Copy: |
|
| Printing and binding |
$4.20 |
| Administrative costs |
$1.60 |
| Salespeople's commission (2% of selling price) |
$0.60 |
| Author's royalties (12% of selling price) |
$3.60 |
| Bookstore discounts (20% of selling price) |
$6.00 |
| Total |
$16.00 |
| |
|
| Projected Selling Price |
$30.00 |
The company's marginal tax rate is 40 percent.
Q1. Determine the company's breakeven volume for this book:
i. in units
II. In dollar sales
Q2. Develop a breakeven chart for the textbook.
Q3. Determine the number of copies East must sell in order to earn an (operating) profit of $21,000 on this book.
Q4. Suppose East feels that $30.00 is too high a price to charge for a new finance textbook. It has examined the competitive market and determined that $24.00 would be a better selling price. What would the breakeven volume be at this new selling point?