Question

Eastman Publishing Company is considering publishing an electronic textbook about spreadsheet applications for business. The fixed cost of manuscript preparation, textbook design, and web-site construction is estimated to be $150,000. Variable processing costs are estimated to be $7 per book. The publisher plans to sell single-user access to the book for $49. Through a series of web-based experiments, Eastman has created a predictive model that estimates demand as a function of price. The predictive model is demand

Answer 1

Question Completion:

What profit can be anticipated with a demand of 3,400 copies?

With a demand of 3,400 copies, what is the access price per copy that the publisher must charge to break even?

Answer:

Eastman Publishing Company

a) A loss of $7,200 can be anticipated with a demand of 3,400.

b) The access price per copy with a demand of 3,400 copies should be $51.

Step-by-step explanation:

a) Data and Calculations:

Fixed cost = $150,000

Variable costs per book = $7

Selling price of single-user access per book = $49

Demand = 3,400 copies

Profit based on a demand of 3,400 copies:

Income Statement:

Sales Revenue ($49 *3,400) $166,600

Variable costs ($7 * 3,400) 23,400

Contribution margin $142,800

Fixed cost 150,000

Net loss $7,200

To break-even, the total sales revenue should be equal to the total costs. Therefore, the access price should be:

Total costs:

Fixed cost $150,000

Variable 23,400

Total costs $173,400

Sales unit 3,400

Access price = $51.00 ($173,400/3,400)