Elephant books sells paperback books for $7 each. The variable cost per book is $5. at current annual Sales of 200,000 books, the publisher is just breaking even. It is estimated that if the authors royalties are reduced, the variable cost per book will drop by $1. Assume authors royalties are reduced and sales remain constant; how mush more money can the publisher put into advertising(a fixed cost) and still break even?
After breakeven, all contribution margin goes to profits since the fixed costs do not change. ...
The solution explains how much fixed costs can be increased given a change in variable cost so that the breakeven is achieved.