Question

In: Accounting

A publisher for a promising new novel figures fixed costs​ (overhead, advances,​ promotion, copy​ editing, typesetting,...

A publisher for a promising new novel figures fixed costs​ (overhead, advances,​ promotion, copy​ editing, typesetting, and so​ on) at $51,000​, and variable costs​ (printing, paper,​ binding, shipping) at ​$1.70 for each book produced. With this​ pricing, 4147 books need to be produced and sold at $ 14.00 each for the publisher to break even. ​ However, rising prices for paper require an increase in variable costs to ​$2.20 for each book produced.

Use this information to complete parts a. through c.

a.  What strategies might the company use to deal with this increase in​ costs? Choose all that are reasonable.

A. Find different suppliers to try and lower the variable costs.

B. Increase the selling price of the book.

C. Decrease the fixed costs.

D. Increase the font size of the print in the book.

b.  If the company continues to sell books at ​$14, how many books must they now sell to make a​ profit?The publisher must produce and sell at least ___ books to make a profit.

​(Round up to the nearest whole​ book.)

Solutions

Expert Solution

a) Following are the correct Options Reason
A. Find different suppliers to try and lower the variable costs. Lowering variable cost will increase our contribution per book and thereby decrease the breakeven
B. Increase the selling price of the book. Increasing selling price will increase our contribution per book and thereby decrease the breakeven
C. Decrease the fixed costs. Decrease in fixed cost will increase our contribution per book and thereby decrease the breakeven
b) Break Even = Fixed cost / Contribution per unit
     =51000 / (14-2.20)
                                                                            4,322 Units
or 4323 Units (approx)

ekkarill92 answered 1 year ago
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