Answer to Question #286477 in Other for Ruth

Question

1Hoot Washington is the newly elected leader of the IN US. Media Publishers is negotiating to publish Hoot’s Manifesto, a new book that promises to be an instant best-seller. The fixed costs of producing and marketing the book will be $500,000. The variable costs of producing and marketing will be $4.00 per copy sold. These costs are before any payments to Hoot. Hoot negotiates an up-front payment of $3 million, plus a 15% royalty rate on the net sales price of each book. The net sales price is the listed bookstore price of $30, minus the margin paid to the bookstore to sell the book. The normal bookstore margin of 30% of the listed bookstore price is expected to apply.

Required

3 Examine the sensitivity of the breakeven point to the following changes:

a. Decreasing the normal bookstore margin to 20% of the listed bookstore price of $30

b. Increasing the listed bookstore price to $40 while keeping the bookstore margin at 30%

c. Comment on the results

Answer 1

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