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Answer
The answer and procedures of the exercise are attached in the following archives.
Explanation
You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.
Answer:
a. Determine the company’s breakeven volume for this book. •i. In units ii. In dollar sales
total fixed costs = $70,000
variable costs per unit = $16
sales price = $30
contribution margin = $30 - $16 = $14
break even point in units = $70,000 / $14 = 5,000 textbooks
break even point in $ = 5,000 x $30 = $150,000
b. Develop a breakeven chart for the text.
units fixed costs variable costs total costs total sales
0 70000 0 70000 0
1000 70000 16000 86000 30000
2000 70000 32000 102000 60000
3000 70000 48000 118000 90000
4000 70000 64000 134000 120000
<u>5000 70000 80000 150000 150000 </u>
6000 70000 96000 166000 180000
I attached the graph that corresponds to this break even chart.
c. Determine the number of copies East must sell in order to earn an (operating) profit of $21,000 on this text.
($70,000 + $21,000) / $14 = 6,500 units
total sales = 6,500 x 30 = $195,000
d. Determine total (operating) profits at the following sales levels: i. 3,000 units •ii. 5,000 units iii. 10,000 units
i. $28,000 loss
ii. no gain/loss, break even point
iii. $70,000 gain
e. Suppose East feels that $30.00 is too high a price to charge for the new finance text. It has examined the competitive market and determined that $24.00 would be a better selling price. What would the break even volume be at this new selling price?
new contribution margin = $24 - $16 = $8
new break even point in units = $70,000 / $8 = 8,750 textbooks
