Question

you own a small business selling generic textbooks. all generic textbooks sell for the same price. your overhead costs each month are rent and phone plan expenses: 1,000 per month your variable costs for each item you sell is $10.00. (printing costs, glue, etc.) you charge a flat amount for each generic book you sell: $20.00 price to the customer for each book given this information: 1. what is the number of books you need to sell each month to break even? 2. what is the breakeven number of books you need to sell each month if you raise the selling price per book to $30.00? 3. what is the breakeven number of books you need to sell each month if you can reduce your total overhead fixed costs to $800.00 per month?

Answer 1

To breakeven in the original scenario, 100 textbooks must be sold. If the selling price per book is raised to $30, only 50 books are needed, and if overhead is reduced to $800, 80 books are necessary to breakeven.

Step-by-step explanation:

Breakeven Analysis for a Textbook Business

To determine the number of books needed to breakeven, you must account for both fixed and variable costs. Fixed costs are the overhead expenses that do not change regardless of the number of items sold, while variable costs change with production volume.

1. The original scenario has a fixed cost of $1,000 (rent and phone) and a variable cost of $10 per book. Since you sell each book for $20, the contribution margin per book (selling price minus variable cost) is $10. To cover the fixed costs, you need to sell 100 books ($1,000 fixed cost / $10 contribution margin per book).
2. If you raise the price to $30 while maintaining the same costs, the contribution margin per book increases to $20 ($30 - $10). Therefore, you would need to sell 50 books to cover the fixed costs ($1,000 / $20).
3. Should you reduce your fixed overhead to $800, and assuming the selling price remains at the initial $20, with the same contribution margin of $10 per book, you would need to sell 80 books to breakeven ($800 / $10).

Each scenario provides a clear illustration of how altering the selling price or fixed costs affects the breakeven point, demonstrating vital aspects of business financial planning.