In: Accounting
Eastman Publishing Company is considering publishing an electronic textbook about spreadsheet applications for business. The fixed cost of manuscript preparation, textbook design, and web-site construction is estimated to be $170,000. Variable processing costs are estimated to be $5 per book. The publisher plans to sell single-user access to the book for $45.
Through a series of web-based experiments, Eastman has created a predictive model that estimates demand as a function of price. The predictive model is demand = 4,000 - 6p, where p is the price of the e-book.
B. Use Goal Seek to calculate the price that results in breakeven. If required, round your answer to two decimal places.
(a) |
Build a spreadsheet model to calculate the profit/loss for a given demand. What is the demand? |
Selling price per unit | p | ||||
Variable cost per unit | 5 | ||||
Contribution per unit | p-5 | ||||
Demand | 4000-6p | ||||
Fixed Cost | 170000 | ||||
Sales X Contribution | = | Fixed Cost | |||
(4000-6p) (p-5) | = | 170000 | |||
4000p-20000-6p2+30p | = | 170000 | |||
4030p-6p2 | = | 190000 | |||
p(sale price) | = | 51 | |||
Demand = | 4000-6p | ||||
= | 4000-6(51) | ||||
= | 3694 | ||||
Therefore the demand is 3694 units for the price for breakeven sale at sale price of 51 | |||||
Spreadsheet | |||||
Particulars | Per unit | No of units | Amount | ||
Sale price | = | 51 | 3694 | 188394 | |
Variable cost per unit | = | 5 | 3694 | 18470 | |
Contribution per unit | = | 46 | 3694 | 169924 | |
Fixed Cost | = | 170000 | 170000 | ||
Profit/loss | = | -76 |