S 225g 25gg 825 1ggg 2625 S92gg S1gggg

Total variable costs per copy List price per copy number of illustrations, doing only light copyediting, using a lower grade of paper, negotiating with the author to reduce the royalty rate, and so on.

Assume now that the publisher is interested in determining how many copies must sell to earn a $20,000 profit. Because profit contribution is the amount available to cover fixed costs and provide profit, the answer is found by adding the profit requirement to the book's fixed costs and then dividing by the per-unit profit contribution. The sales volume required in this case is 15,000 books, found as follows:

Consider yet another decision problem that might confront the publisher. Assume that a book club has offered to buy 3,000 copies at a price of $77 per copy. Cost-volume-profit analysis can be used to determine the incremental effect of such a sale on the publisher's profits.

Because fixed costs do not vary with respect to changes in the number of textbooks sold, they should be ignored. Variable costs per copy are $92, but note that $25 of this cost represents bookstore discounts. Because the 3,000 copies are being sold directly to the club, this cost will not be incurred. Hence, the relevant variable cost is only $67 (= $92 - $25). Profit contribution per book sold to the book club is $10 (= $77 - $67), and $10 times the 3,000 copies sold indicates that the order will result in a total profit contribution of $30,000. Assuming that these 3,000 copies would not have been sold through normal sales channels, the $30,000 profit contribution indicates the increase in profits to the publisher from accepting this order.

Was this article helpful?

0 0
Your Retirement Planning Guide

Your Retirement Planning Guide

Don't Blame Us If You End Up Enjoying Your Retired Life Like None Of Your Other Retired Friends. Already Freaked-Out About Your Retirement? Not Having Any Idea As To How You Should Be Planning For It? Started To Doubt If Your Later Years Would Really Be As Golden As They Promised? Fret Not Right Guidance Is Just Around The Corner.

Get My Free Ebook


Post a comment