2. The world-famous discounter, Fernwood Booksellers, specializes in selling paperbacks for $7 each. The variable cost...

2. The world-famous discounter, Fernwood Booksellers, specializes in selling paperbacks for $7 each. The variable cost per book is $5. At current annual sales of 200,000 books, the publisher is just breaking even. It is estimated that if the authors' royalties are reduced, the variable cost per book will drop by $1. Assume authors' royalties are reduced and sales remain constant; how much more money can the publisher put into advertising (a fixed cost) and still break even?

a. $200,000

b. $333,333

c. $466,667

d. $600,000

e. None of these choices are correct.

Expert Solution

How much more money can the publisher put into advertising (a fixed cost) and still break even?

Answer: $200,000

Working:

Since sale remains constant, maximum more money we can invest into advertising will be the savings from reduction in variable cost.

Saving from reduction in variable cost = Sale unit * (old variable cost per unit – reduced variable cost per unit)

= 200,000 * ($5 – $4)

= $200,000

jeff jeffy answered 2 years ago

The world-famous discounter, Fernwood Booksellers, specializes in selling paperbacks for $7 each. The variable cost per...

The world-famous discounter, Fernwood Booksellers, specializes in selling paperbacks for $7 each. The variable cost per book is $5. At current annual sales of 200,000 books, the publisher is just breaking even. It is estimated that if the authors' royalties are reduced, the variable cost per book will drop by $1. Assume authors' royalties are reduced and sales remain constant; how much more money can the publisher put into advertising (a fixed cost) and still break even? (Hint: Find the...

A new restaurant situated on a highway in specializes in a chef's salad selling for $7....

A new restaurant situated on a highway in specializes in a chef's salad selling for $7. Daily fixed costs are $1,100, and variable costs are $4 per meal. With a capacity of 550 meals per day, the restaurant serves an average of 500 meals each day. (a.) Determine the current average cost per meal. Round your answer to two decimal places. $______ (b.) A busload of 30 Girl Scouts stops on its way home from the San Bernardino National Forest....

Old World Charm, Inc. specializes in selling scented candles. The company has established a policy of...

Old World Charm, Inc. specializes in selling scented candles. The company has established a policy of reordering inventory every other month (which is 6 times per year). A recently employed MBA has considered New England's inventory problem from the EOQ model viewpoint. If the following constitute the relevant data, what is the extra total cost of the current policy compared with the total cost of the optimal policy? Enter your answer rounded to two decimal places. Do not enter $...

2. Consider the actions below. Classify each cost as variable, fixed, or semi-variable and explain the...

2. Consider the actions below. Classify each cost as variable, fixed, or semi-variable and explain the classification. How would each of these actions impact the firm’s breakeven level? a. Hire a new salaried employee b. Pay part-time employees a higher minimum wage c. Purchase additional radio advertising spots for the current month d. Use a cash discount to reduce the cost of products purchased to be sold

How do you find variable cost of goods sold and variable selling and administrative expenses for...

How do you find variable cost of goods sold and variable selling and administrative expenses for both months in the income statement in Required 2? Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 4 Direct labor 11 Variable manufacturing overhead 4 Variable selling and administrative 2 Total variable cost per unit $ 21 Fixed costs per month: Fixed manufacturing overhead $ 120,000 Fixed selling and administrative...

Product AG52 has revenues of $195,600, variable cost of goods sold of $114,200, variable selling expenses...

Product AG52 has revenues of $195,600, variable cost of goods sold of $114,200, variable selling expenses of $31,600, and fixed costs of $58,100, creating a loss from operations of $8,300. a. Prepare a differential analysis as of October 7 to determine if Product AG52 should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision. If an amount is zero, enter "0". Use a minus sign to indicate a loss. Differential Analysis Continue Product...

A firm’s fixed cost $50,000 and its variable cost is $3 per unit. The selling price...

A firm’s fixed cost $50,000 and its variable cost is $3 per unit. The selling price $5 per unit. The management is considering two projects but only one would be selected. Project A will result in an increase in fixed cost, which will amount to $150,000 and a decrease in variable cost which fall to $2. Project B is less ambitious undertaking that results in fixed costs increasing to $70,000 and variable costs decreasing to $2.30 per unit. Currently 55,000...

Knox Corporation manufactures an item. The cost structure is: Manufacturing Selling & Administrative Variable cost per...

Knox Corporation manufactures an item. The cost structure is: Manufacturing Selling & Administrative Variable cost per unit $100 $30 Total fixed cost $800,000 $203,000 In its first year of operations, Knox Corporation produced 70,000 items and sold 64,000 at $200 each. Part 1: What is the contribution margin at the end of the first year of operations under the variable costing method? Part 2: Which costing method (variable or absorption) will generate a higher net operating income in Knox Corporation’s...

2) A corporation sells 66,000 units of a product for $19.75 each; the variable cost per...

2) A corporation sells 66,000 units of a product for $19.75 each; the variable cost per unit is $11.50 each. The fixed costs are $315,000. Required A) breakeven units and dollars. B) how many units must be sold to achieve targeted income of $465,0007 C) What is the margin of safety in dollars and percentage? D) What is the operating leverage? E) The sales manager wants to raise prices by $2.00 each; demand will drop by ten percent, and the...

Check your worksheet by changing the variable selling cost in the Data area to $900, keeping all of the other data the same as in Exhibit 1–7.

This Excel worksheet form is to be used to recreate Exhibit 1–7. The workbook, and instructions on how to complete the file, can be found in Connect. Required: 1. Check your worksheet by changing the variable selling cost in the Data area to $900, keeping all of the other data the same as in Exhibit 1–7. If your worksheet is operating properly, the net operating income under the traditional format income statement and under the contribution format income statement should...

Question