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Eastman publishing Company is considering publishing a paperback textbook on spreadsheet applications for business. The fixed cost of manuscript preparation, text- book design, and production setup is estimated to be $80,000. Variable production and material costs are estimated to be $3 per book. Demand over the life of the book is estimated to be 4,000 copies. The publisher plans to sell the text to college and university bookstores for $20 each.

Required:
a. What is the breakeven point?
b. What profit or loss can be anticipated with a demand of 4000 copies?
c. With a demand of 4000 copies, what is the minimum price per copy that the publisher must charge to break even?
d. If the publisher believes that the price per copy could be increased to $25.95 and not affect the anticipated demand of 4000 copies, what action would you recommend? What profit or loss can be anticipated?

Respuesta :

Parrain

Based on the details supplied by Eastman Publishing Company, the following are true:

  • Breakeven point = 4,706 units
  • Profit or loss at 4,000 copies = -$12,000
  • Price to break even at 4,000 copies = $23
  • Profit at $25.95 = $11,800. Publisher should increase price.

What is the breakeven point?

20 x breakeven point = 80,000 + 3 x breakeven point

17 x breakeven = 80,000

Breakeven point = 80,000 / 17

= 4,706 units

What is the profit or less at 4,000 copies?

= ( (4,000 units x 20) - 80,000 - (4,000 x 3 variable cost per book))

= -$12,000

What is the breakeven price at 4,000 units?

0 = ( (4,000 units x Price ) - 80,000 - (4,000 x 3 per book))

Price = $23

What s the profit at $25.95?

= ( (4,000 units x 25.95) - 80,000 - (4,000 x 3 per book))

= $11,800

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