Fisher Publishing Inc. is doing a financial feasibility analysis for a new book. Editing and preproduction costs are estimated at $45,000. The printing costs are a flat $7000 for setup plus $8.00 per book. The author’s royalty is 8% of the publisher’s selling price to bookstores. Advertising and promotion costs are budgeted at $8000.
a. If the price to bookstores is set at $35, how many books must be sold to break even?
b. The marketing department is forecasting sales of 4800 books at the $35 price. What will be the net income from the project at this volume of sales?
c. The marketing department is also forecasting that, if the price is reduced by 10%, unit sales will be 15% higher. Which price should be selected? (Show calculations that support your recommendation.)
d. In a highest cost scenario, fixed costs might be $5000 higher and the printing costs might be $9.00 per book. By how many books would the break-even volume be raised?