East Publishing Company is doing an analysis of a proposed new finance text. Using the following data, answer Parts a through e. Fixed Costs (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 Costs (per copy): Printing and binding $4.20 Administrative costs 1.60 Salespeople’s commission (2% of selling price) .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. a. Determine the company’s breakeven volume for this book. •i. In units ii. In dollar sales b. Develop a breakeven chart for the text. c. Determine the number of copies East must sell in order to earn an (operating) profit of $21,000 on this text. d. Determine total (operating) profits at the following sales levels: i. 3,000 units •ii. 5,000 units iii. 10,000 units e. Suppose East feels that $30.00 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 this new selling price?

a. Determine the company’s breakeven volume for this book. •i. In units ii. In dollar sales

total fixed costs = $70,000

variable costs per unit = $16

sales price = $30

contribution margin = $30 - $16 = $14

break even point in units = $70,000 / $14 = 5,000 textbooks

break even point in $ = 5,000 x $30 = $150,000

b. Develop a breakeven chart for the text.

unitsfixed costsvariable costs      total costs     total sales

0         70000                     0                  70000           0

100070000          16000          86000      30000

200070000         32000         102000      60000

300070000         48000          118000      90000

400070000         64000         134000     120000

500070000         80000         150000       150000

600070000         96000      166000     180000

I attached the graph that corresponds to this break even chart.

c. Determine the number of copies East must sell in order to earn an (operating) profit of $21,000 on this text.

($70,000 + $21,000) / $14 = 6,500 units

total sales = 6,500 x 30 = $195,000

d. Determine total (operating) profits at the following sales levels: i. 3,000 units •ii. 5,000 units iii. 10,000 units

i. $28,000 loss

ii. no gain/loss, break even point

iii. $70,000 gain

e. Suppose East feels that $30.00 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 break even volume be at this new selling price?

new contribution margin = $24 - $16 = $8

new break even point in units = $70,000 / $8 = 8,750 textbooks

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