The costs of publishing a grade school textbook can be assumed to be as follows.
ID: 2443328 • Letter: T
Question
The costs of publishing a grade school textbook can be assumed to be as follows. Use the date for questions 2 to 5.
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 unit contribution margin for each copy of the book is:
Answer
Answer
Answer
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
Explanation / Answer
Fixed expenses for each new edition of the book: Copy editing $3,000 Art work $1,000 Typesetting $36,000 --------------------------------------------------------- Total Fixed cost = $40,000 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 ---------------------------------------------------------- Total VC per book =$4.85 ---------------------------------- a. Sale price $10 per book COnt per book = Sale price - Var cost = $10-$4.85 = $5.15 CM Ratio = Cont per book/Sale price per book = $5.15/$10 = 51.5%.........Ans (A) b. Current Sales = 8000 units Total Cont for 8000 units = 8000*$5.15 = $41,200 If Sale price is reduced by $1 ie from $10 to $9, Cont margin per book also reduces by $1 to $4.15 ie.($9-$4.85) And Sales vol increases to 9000 books. SO Total Cont for 9000 books = 9000*$4.15 = $37350 SO Total Cont reduces from $41200 to $37350 ie by $3850........Ans (B) c. BEP in Sales dollars = Fixed costs/CM Ratio = ($40000/51.5)*100 = $77,670....Ans (C)
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