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East Publishing Company Finance

East Publishing Company is doing an analysis of a proposed new
finance textbook. Using the following data, answer (a) through (d).

Fixed Cost per Edition:

Development (reviews, class testing , and so on) $18,000
Copyediting $5,000
Selling and promotion $7,000
Typesetting $40,000
Total $70,000

Variable Cost per Copy:
Printing and binding $4.20
Administrative costs $1.60
Salespeople's commission (2% of selling price) $0.60
Author's royalties (12% of selling price) $3.60
Bookstore discounts (20% of selling price) $6.00
Total $16.00

Projected Selling Price $30.00
The company's marginal tax rate is 40 percent.

a. Determine the company's breakeven volume for this book:
i. in units
II. In dollar sales

b. Develop a breakeven chart for the textbook.

c. Determine the number of copies East must sell in order to earn an
(operating) profit of $21,000 on this book.

d. Suppose East feels that $30.00 is too high a price to charge for a new
finance textbook. It has examined the competitive market and
determined that $24.00 would be a better selling price. What would
the breakeven volume be at this new selling point?

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Solution Summary

East Publishing Company is doing an analysis of a proposed new
finance textbook. The solutions gives details on

a. company's breakeven volume for this book:
i. in units
II. In dollar sales

b. Breakeven chart for the textbook.

c. number of copies East must sell in order to earn an
(operating) profit of $21,000 on this book.

$2.19