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Contribution margin and ratios for publishing books

The costs of publishing a grade school textbook can be assumed to be as follows:

Fixed expenses for each new edition of the book:
Copy editing $3,000
Art work $1,000
Typesetting $36,000

Variable expenses per copy of the book:
Printing and binding $2.60
Bookstore discounts $2.00
Salespersons' commissions 0.40
Author's royalties $1.00

Each book sells for $20 per copy.

The unit contribution margin for each copy of the book is: _________________

The contribution margin ratio for the textbook is: _________________________

The publishing company is currently selling 8,000 copies of the textbook per edition but management feels that sales could be increased by 1,000 books if the selling price per book was reduced by $1.00 per copy. Implementing such a policy should result in:
_______________________________________________________

The break-even point in total sales revenue at the price of $12 per copy is: ___________________________

Solution Preview

The unit contribution margin for each copy of the book is: _________________

Unit contribution margin = Selling price per unit - variable cost per unit
Selling Price is given as $20
The variable expenses are
Printing and binding $2.60
Bookstore discounts $2.00
Salespersons' commissions 0.40
Author's royalties $1.00
The total variable cost is 2.60+2.00+0.40+1.00 = $6.00
Unit ...

Solution Summary

The solution explains how to calculate the contribution margin and the contribution margin ratio for book publishing business.

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