CVP analysis, sensitivity analysis. Hoot Washington is the newly elected leader of the Republican Party. 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

1. Prepare a PV graph for Media Publishers.
2. How many copies must Media Publishers sell to (a) break even and (b) earn a target operating income of $2 million?
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