The costs of publishing a grade school textbook can be assumed to be as follows.
ID: 2443240 • Letter: T
Question
The costs of publishing a grade school textbook can be assumed to be as follows.
Fixed expenses for each new edition of the book:
Copy editing $3,000
Art work $1,000
Typesetting $36,000
Variable expenses per copy of the book:
Printing and binding $1.60
Bookstore discounts $2.00
Salespersons' commissions $0.25
Author's royalties $1.00
Each book sells for $10 per copy.
The publishing company is currently selling 8,000 copies of the textbook per edition but management feels that sales could be increased by 1,000 books if the selling price per book was reduced by $1.00 per copy.
Implementing such a policy should result in:
A. an increase in total contribution margin of $5,150.
B. a decrease in total contribution margin of $4,150.
C. a decrease in total contribution margin of $3,850.
D. an increase in total contribution margin of $4,850.
Explanation / Answer
Contribution Margin = [Sales - Variable Cost] Total Sales = 8,000 copies * $10 per copy Total Sales = $80,000 Total Variable Costs = [$1.60 + $2.00 + $0.25 + $1.00] Total Variable Costs = $4.85 Total Variable Costs = 8,000 copies * $4.85 per copy Total Variable Costs = $38,800 Unit Contribution Margin = [$80,000 - $38,800] Unit Contribution Margin = $41,200 ----------------------------------------------------------------------------------------------------- Contribution Margin = [Sales - Variable Cost] Total Sales = [8,000 copies + 1,000 copies] Total Sales (with increased sales) = 9,000 copies The publishing company is currently selling 8,000 copies of the textbook per edition but management feels that sales could be increased by 1,000 books if the selling price per book was reduced by $1.00 per copy. Selling Price per Copy = [$10 per copy - $1.00 per copy] Selling Price per Copy = $9 per copy Total Sales (with increased sales) = 9,000 copies * $9 per copy Total Sales (with increaed sales) = $81,000 Total Variable Costs: Printing and Binding $1.60 Bookstore discounts $2.00 Salespersons Commissions $0.25 Author's royalties $1.00 Total Variable Costs = $4.85 per copy Total Variable Costs = [9,000 copies * $4.85 per copy] Total Variable Costs = $43,650 Contribution Margin = [$81,000 - $43,650] Contribution Margin = $37,350 Difference = [$41,200 - $37,350] Difference = $3,850 Decerease in Total Contribution Margin of $3,850 Hence, the correct optin is (C) a decrease in total contribution margin of $3,850Related Questions
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