Question

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 $160,000. Variable processing costs are estimated to be $6 per book. The publisher plans to sell single-user access to the book for $46.

(a)	Build a spreadsheet model in Excel to calculate the profit/loss for a given demand. What profit can be anticipated with a demand of 3,500 copies?
	For subtractive or negative numbers use a minus sign.
	$
(b)	Use a data table to vary demand from 1,000 to 6,000 in increments of 200 to test the sensitivity of profit to demand. Breakeven occurs where profit goes from a negative to a positive value, that is, breakeven is where total revenue = total cost yielding a profit of zero. In which interval of demand does breakeven occur?
	(i) Breakeven appears in the interval of 4,200 to 4,800 copies.
	(ii) Breakeven appears in the interval of 4,000 to 4,200 copies.
	(iii) Breakeven appears in the interval of 3,800 to 4,000 copies.
	(iv) Breakeven appears in the interval of 3,600 to 3,800 copies.
	- Select your answer -Option (i)Option (ii)Option (iii)Option (iv)
(c)	Use Goal Seek to answer the following question. With a demand of 3,500 copies, what is the access price per copy that the publisher must charge to break even?
	If required, round your answers to two decimal places.
	$

Answer 1

Let D= Demand

Fixed cost = $160,000

Total Variable Cost = $6*D

Revenue = $46*D

Total Cost = Fixed cost +total variable cost = 160000+6D

Total Profit = Revenue - Total Cost = 46D - (160000+6D)

a) Build a spreadsheet model in Excel to calculate the profit/loss for a given demand. What profit can be anticipated with a demand of 3,500 copies?

Prepare the following sheet

Get this

ans:

b) Use a data table to vary demand from 1,000 to 6,000 in increments of 200 to test the sensitivity of profit to demand.

Create the following table

get this

select the table created and using data--->what if analysis--->data table set up the following

get this

The Breakeven occurs at demand = 4000

ans: (ii) Option: Breakeven appears in the interval of 4,000 to 4,200 copies.

c) With a demand of 3,500 copies, what is the access price per copy that the publisher must charge to break even?

set up using data--->what if analysis---> goal seek

get this

ans:  the access price per copy that the publisher must charge to break even is $52