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problem1: East Publishing Company is doing an analysis of a proposed new finance text book. Using the following information, answer A through D.

Fixed costs per edition:

Development $18,000

Copyediting     $ 5,000

Selling/Promo $ 7,000

Typesetting     $40,000

Total                $70,000 

Variable costs per copy

Printing/bind   $4.20

Admin costs     $1.60

Sales commission    $0.06   2% of selling price

Royalties         $3.60   12% of selling price

Discounts         $6.00   20% of selling price

Total                $16.00 

Projected selling price $30.00

Tax rate is 40%

find out the firm's breakeven volume for the book

In units

In dollar sales

Make a breakeven chart for the text book

Find the number of copies they must sell to earn an operating profit of $21,000 on this book

Assume East feels that $30 is too high a price to charge. It examined the market and determined that dollar 24 would be better. Find the break even volume at the new price?

problem2: Rodney Rogers, a business school grad, plans to open a wholesale dairy products company.  The business will be completely financed with equity. Rogers expects first year sales to total $5,500,000.  He desires to earn a target pretax profit of $1,000,000 during his first year of operation. Variable costs are 40% of sales.

[A] How large can his fixed operating costs be if he is to meet his profit target?

[B] What is his breakeven level of sales at the level of fixed operating costs determined in [A]?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M920525

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