Question

Eastman Publishing Company is considering publishing an electronic textbook on spreadsheet applications for business. The fixed cost of manuscript preparation, textbook design, and website construction is estimated to be $150,000. Variable processing costs are estimated to be $7 per book. The publisher plans to sell access to the book for $49 each.

a) Build a spreadsheet model in Excel to calculate the profit/loss for a given demand. What profit can be anticipated with a demand of 3,400 copies? For subtractive or negative numbers use a minus sign.
b) Use a data table to vary demand from 1000 to 6000 increments of 200 to test the sensitivity of profit to demand. Breakeven occurs where profit goes from a negative to a positive value, that is, breakeven is where total revenue = total cost yielding a profit of zero. In which interval of demand does breakeven occur?
i) Breakeven appears in the interval of 3,000 to 3,200 copies.
ii) Breakeven appears in the interval of 3,400 to 3,600 copies.
iii) Breakeven appears in the interval of 3,600 to 3,800 copies.
iv) Breakeven appears in the interval of 3,800 to 4,000 copies.
c) Use Goal Seek to answer the following question. With a demand of 3,400 copies, what is the access price per copy that the publisher must charge to break even? If required, round your answers to two decimal places.

Answer 1

To calculate the profit/loss for a demand of 3,400 copies, use the formula Profit = (Demand x Price) - (Fixed Cost + (Variable Cost per book x Demand)). Breakeven occurs in the interval of 3,400 to 3,600 copies. Using Goal Seek, the access price per copy that the publisher must charge to break even with a demand of 3,400 copies is $50.73.

Step-by-step explanation:

To calculate the profit/loss for a given demand of 3,400 copies, you can use the following formula in Excel: Profit = (Demand x Price) - (Fixed Cost + (Variable Cost per book x Demand)). Using the given information, the profit can be calculated as follows: Profit = (3,400 x $49) - ($150,000 + ($7 x 3,400)) = $42,740.

To test the sensitivity of profit to demand, you can use a data table in Excel. Vary the demand from 1000 to 6000 in increments of 200 and calculate the profit using the formula mentioned above. Breakeven occurs when the profit goes from negative to positive. Based on the data table, it can be observed that breakeven occurs in the interval of 3,400 to 3,600 copies.

To determine the access price per copy that the publisher must charge to break even with a demand of 3,400 copies, you can use the Goal Seek feature in Excel. Set the profit cell to zero by changing the access price per copy cell. Excel will then automatically calculate the required access price per copy. Rounded to two decimal places, the required access price per copy is $50.73.