Computation of break even points.
East Publishing Company is doing an analysis of a proposed new finance text book. Using the following data, answer a through d.
Fixed costs per edition:
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Development
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$18,000
|
|
Copyediting
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$5,000
|
|
Selling/Promo
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$7,000
|
|
Typesetting
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$40,000
|
|
Total
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$70,000
|
Variable costs per copy:
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Printing/bind
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$4.20
|
|
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Admin costs
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$1.60
|
|
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Sales comm.
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$0.06
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2% of selling price
|
|
Royalties
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$3.60
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12% of selling price
|
|
Discounts
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$6.00
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20% of selling price
|
|
Total
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$16.00
|
|
Projected selling price $30.00
Tax rate is 40%
a. determine the company's breakeven volume for the book
i. in units
ii. in dollar sales
b. develop a breakeven chart for the text book
c. determine the number of copies they must sell to earn an operating profit of $21,000 on this book
d. Suppose East feels that $30 is too high a price to charge. It examined the market and determined that $24.00 would be better. What would the break even volume be at the new price?
2. Rodney Rogers, a business school grad, plans to open a wholesale dairy products firm. The business will be completely financed with equity. Rogers expects first year sales to total $5,500,000. He desires to earn a target pretax profit of $1,000,000 during his first year of operation. Variable costs are 40% of sales.
A. how large can his fixed operating costs be if he is to meet his profit target?
B. what is his breakeven level of sales at the level of fixed operating costs determined in (a)?