Problem:
Elephant Books sells paperback books for $7 each. The variable cost per book is $5. At current annual sales of 200,000 books, the publisher is just breaking even. It is estimated that if the authors' royalties are reduced, the variable cost per book will drop by $1.
Required:
Assume authors' royalties are reduced and sales remain constant; how much more money can the publisher put into advertising (a fixed cost) and still break even?
a. $600,000
b. $466,667
c. $333,333
d. $200,000
e. None of the above
Note: Show supporting computations in good form.