The influence diagram below is drawn based on the following question: Eastman Pu

Question

The influence diagram below is drawn based on the following question: Eastman Publishing Company is considering publishing a paperback textbook on spreadsheet applications for business The fixed cost of manuscript preparation, textbook design, and production setup is estimated to be $160,000. Variable production and material costs are estimated to be $6 per book. Demand over the life of the book is estimated to be 4000 copies. As a result, they plan to publish 4000 copies. The publisher plans to sell the text to college and university bookstores for $46 each. Build an Excel model based on the influence diagram. (That is, use the variables shown on the diagram in an Excel model.) With a demand of 3500 copies, what is the minimum price per copy that the publisher must charge to break even?

Explanation / Answer

Eastman Publishing Company All Amounts in $ 1. Influence Diagram Demand over the life of the book 4000 copies Estimates of Publishing 4000 copies Sale Price per Book $ 46 Variable Production and Material Costs per Book $ 6 Contribution Margin per Book $ 40 Total Contribution Margin for 4,000 copies 160000 Fixed Costs for Books published 160000 Net Income from Sale of Books NIL 2. If the demand is 3500 Copies For Breakeven Revenues = Costs Assuming the minimum price per copy as X 3500X - 3500 X 6 = 160000 Hence, 3500 X = 160000 + 210000 = 370000 Thus, X = 370000 / 3500 = 105.71 $ per book

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