Question

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).

Answer 1

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