Eastman Publishing Company is considering publishing an electronic textbook abou

Question

Eastman Publishing Company is considering publishing an electronic textbook about spreadsheet applications for business. The fixed cost of manuscript preparation, textbook design, and web-site construction is estimated to be $170,000. Variable processing costs are estimated to be $6 per book. The publisher plans to sell single-user access to the book for $52. (a) Build a spreadsheet model in Excel to calculate the profit/loss for a given demand. What profit can be anticipated with a demand of 3, 600 copies? For subtractive or negative numbers use a minus sign. $ (b) Use a data table to vary demand from 1,000 to 6,000 in increments of 200 to test the sensitivity of profit to demand. Breakeven occurs where profit goes from a negative to a positive value, that is, breakeven is where total revenue = total cost yielding a profit of zero. In which interval of demand does breakeven occur? (i) Breakeven appears in the interval of 3, 200 to 3, 400 copies. (ii) Breakeven appears in the interval of 3, 600 to 3, 800 copies. (iii) Breakeven appears in the interval of 3, 800 to 4,000 copies. (iv) Breakeven appears in the interval of 4,000 to 4, 200 copies. (c) Use Goal Seek to answer the following question. With a demand of 3, 600 copies, what is the access price per copy that the publisher must charge to break even? If required, round your answers to two decimal places. $

Explanation / Answer

a. What profit or loss can be anticipated with a demand of 3600 copies?

Loss can be anticipated with a demand of 3600 copies = (Sell Price - Variable Cost)* No of Unit - Fixed Cost

Loss can be anticipated with a demand of 3600 copies = (52-6)*3600 - 170000

Loss can be anticipated with a demand of 3500 copies = - $ 4400

b. What is the breakeven point?

Breakeven point = Fixed Cost/(Sell Price - Variable Cost)

Breakeven point = 170000/(52-6)

Breakeven point = 3695.65217  Unit

option ii) is correct between 3600 -3800

c. With a demand of 3600 copies, what is the minimum price per copy that the publisher must charge to break even?

Minimum price per copy that the publisher must charge to break even =Fixed cost/ New Break Even Point + Variable Cost

Minimum price per copy that the publisher must charge to break even = 170000/3600 + 6

Minimum price per copy that the publisher must charge to break even = $ 53.2222

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