Centered Publishing Company specializes in health awareness books. Because the field of health awareness is very competitive, Jay Rosenbek the company’s president, maintains a strict policy about selecting manuscripts to publish. Rosenbek wants to publish only books whose projected earnings are 20 percent above total projected costs. Three titles were accepted for publication during 20x8. The authors of those books are Tone, Tyme, and Klay. Projected costs for each book and allocation percentages for common costs are shown below.

Expected sales for 20x8 are as follows: Tone, 26,000 copies; Tyme, 32,000 copies; and Klay, 20,000 copies.
Required
1. Prepare a cost analysis that computes the desired profit for each of the three books and in total.
2. Use gross margin pricing to compute the selling price for each book. (Treat royalty costs as production costs.)
3. Manager Insight: If the competition’s average selling price for a book similar to Klay’s is $22, should this influence the pricing decision?Explain.

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Total Klay Projected Tone Book Tyme Book Cost Categories Book Costs Direct labor Royalty costs Printing costs Supplies Variable production costs Fixed production costs Distribution costs Marketing costs General and administrative costs $146,250 $243,750 $97,500 $487,500 36,000 60,000 24,000 120,000 74,580 24,300 49,720 248,600 10,260 7,100 6,840 34,200 2,600 71,000 28,400 142,000 25% 168,000 20% 194,000 $ 61,670 S 90,060 $42,270 194,000 25% 52,400 35% 30% 40% 50% 35% 40%