Eastman Publishing Co. is considering publishing a paperback textbook. The fixed cost of setup is estimated to be $80,000. Variable production costs are estimated to be $3 per book. Demand over the life of the book is estimated to be 4,000 copies. The publisher plans to sell the textbook for $20 each. a. What is the breakeven point? b. What profit or loss can be anticipated with a demand of 4,000 copies? c. With a demand of 4,000 copies, what is the minimum price per copy that the publisher must charge to break even? d. If the publisher believes that the price per copy could be increased to $25.95 and not affect the anticipated demand 4,000 copies, what action would you recommend? What profit or loss can be anticipated
What is the breakeven point?
Breakeven point is 80,000/(20-3)= 4,706 copies.
What profit or loss can be anticipated with a demand of 4000 copies?
Loss is 4,000*17- 80,000= 12,000
With a demand of 4,000 copies, what is the minimum price per copy that the publisher must charge to break even?
Answer : $23
Publisher must charge $23 to breakeven (23-3) *4000
If the publisher believes that the price per copy could be increased to $25.95 and not affect the anticipated demand 4,000 copies, what action would you recommend? What profit or loss can be anticipated
= (25.95-3) *4000- 80,000= 11,800 profit.
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