An increase in the bookstore price of 30 to 40 while


Dennis Triumph is the newly elected and charismatic nominee for president of the Republican Party. He is the hero of the right-wing media. In the first nationally televised presidential debates, his "take no prisoners" attitude has left his opponents feeling run over by a Mack truck.

Right Publishers is negotiating to publish Triumph's Manifesto, a new book that Mr. Triumph has written that promises to be an instant success.

The costs of producing and marketing the book are as follows:

                        Fixed costs                                       $500,000

                        Variable costs per copy sold               $4.00

These costs are before any payments to Triumph. Triumph's agent is negotiating an up-front payment of $3 million plus a 15% royalty rate on the net sales price of each book. The net sales price is the listed bookstore price of $30 minus the margin paid to the bookstore to sell the book. The normal bookstore margin of 30% of the listed bookstore price is expected to apply.

4. Right Publishing is considering the following two contract options proposed by Mr. Triumph:

A reduction in the bookstore normal margin of 30% to 20% of the listed bookstore price of $30. Calculate the new breakeven point. 

An increase in the bookstore price of $30 to $40 while keeping the bookstore margin at 30%. Calculate the new breakeven point. 

Which option would you recommend that Right Publishers agree to? Why?

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Accounting Basics: An increase in the bookstore price of 30 to 40 while
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