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In: Accounting

Q17 The following data relate to a popular book sold by a publisher: Fixed Costs: Copy Editing...

Q17 The following data relate to a popular book sold by a publisher:

Fixed Costs:

Copy Editing $

6,110

Artwork $

2,250

Typesetting $

70,853

Variable Costs per copy:

Printing and Binding $

3.17

Bookstore Discounts $

4.14

Sales Commissions $

0.59

Author’s Royalties $

2.44

Each novel copy sells for $

24

Last month the company sold in copies:

10,771

Production manager suggests to buy an additional machine for

$5,250

cost per month and will decrease the variable cost by

$2.25

per copy

Required: Calculate the indifference point (in copies) for the proposed production system and the existing system

Round your answer to the nearbest copy (unit).

Expert Solution

Fixed cost:	Existing system	Proposed production system
Copy editing	$ 6,110	$ 6,110
Artwork	$ 2,250	$ 2,250
Typesetting	$ 70,853	$ 70,853
New machine additional cost in proposed production system	$ -	$ 5,250

Total fixed cost	$ 79,213	$ 84,463

Selling price per copy	$ 24.00	$ 24.00
Variable cost per copy:
Printing and Binding	$ 3.17	$ 3.17
Bookstore discounts	$ 4.14	$ 4.14
Sales commision	$ 0.59	$ 0.59
Author's Royalties	$ 2.44	$ 2.44
Decrease in variable cost per copy in proposed production system	$ -	$ (2.25)

Total variable cost per copy	$ 10.34	$ 8.09

Contribution margin per copy = Selling price per copy - Total variable cost per copy	$ 13.66	$ 15.91

Indifference point (in copies) = Total Fixed cost/ Contribution margin per copy	=79213/13.66 = 5799 copies under existing system	=84463/15.91 = 5309 copies under proposed production system

ekkarill92 answered 2 years ago

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