Question

Kai sells a small magazine full of celebrity gossip to college students for $2.05 per copy. Hiring the printing press for one day, the only fixed cost, is $431 an issue. The variable cost of printing each issue is $1.19 per copy. The printer tells Kai the cost of hiring the press is to increase by $115 per day.

Kai decides to keep his price the same and add color, increasing variable costs by $0.40 per issue. What is the percent increase in unit volume (copies per issue) required to maintain $500 profits and cover the increased fixed and variable costs?

Answer 1

To maintain $500 profits and cover the increased fixed and variable costs, the new unit volume required is approximately 402 copies per issue.

Step-by-step explanation:

To maintain $500 profits and cover the increased fixed and variable costs, we need to calculate the new unit volume required. Let's break down the costs:

Initial fixed cost: $431
New fixed cost: $431 + $115 = $546
Initial variable cost: $1.19 per copy
New variable cost: $1.19 + $0.40 = $1.59 per copy

To calculate the new unit volume, we use the formula:

New Unit Volume = (Fixed Costs + Variable Costs) / Selling Price - Profits

Substituting in the values:

New Unit Volume = ($546 + $1.59) / ($2.05 - $500)

Calculating this, we find that the new unit volume required is approximately 402 copies per issue.