The Press Ltd is considering launching a new monthly magazine Presslnsights at a selling price of...

  

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The Press Ltd is considering launching a new monthly magazine Presslnsights at a selling price of £8 per copy. Sales of the magazine are expected to be 50,000 copies per month, but it is possible that the actual sales could differ quite significantly from this estimate. The Press Ltd has hired a management consultant to produce a report on the sales potential and production costs of the new magazine. The consultant has recommended two different methods of producing the magazine and neither would involve any additional capital expenditure. The estimated production costs for each of the two methods of production, together with the additional marketing and distribution costs of selling the new magazine, are summarised below: Method One £5.5 per copy £32,000 per month Method Two £5 per copy £60,000 per month Variable costs Specific fixed costs Semi-variable costs: The following estimates have been obtained: 30,000 copies 45,000 copies 65,000 copies £55,000 per month £70,000 per month £90,000 per month £47,500 per month £55,000 per month £65,000 per month It may be assumed that the fixed cost content of the semi-variable costs will remain constant throughout the range of activity shown. The company currently sells a magazine, Pressliew covering related topies to those that will be included in the new publication and consequently it is anticipated that sales of this existing magazine will be adversely affected. It is estimated that for every ten copies sold of the new magazine, sales of the existing magazine will be reduced by two copies. Sales and cost data of the existing magazine, Pressliew, are shown below: Sales 110,000 copies per month £9 per copy £5.5 per copy £80,000 per month Selling price Variable costs Specific fixed costs Questions: 1. Profit estimation Calculate, for each production method, the net increase in company profits which will result from the introduction of the new magazine, PressInsights, at each of the following levels of activity: a. 40,000 copies per month b. 50,000 copies per month c. 60,000 copies per month The Press Ltd is considering launching a new monthly magazine Presslnsights at a selling price of £8 per copy. Sales of the magazine are expected to be 50,000 copies per month, but it is possible that the actual sales could differ quite significantly from this estimate. The Press Ltd has hired a management consultant to produce a report on the sales potential and production costs of the new magazine. The consultant has recommended two different methods of producing the magazine and neither would involve any additional capital expenditure. The estimated production costs for each of the two methods of production, together with the additional marketing and distribution costs of selling the new magazine, are summarised below: Method One £5.5 per copy £32,000 per month Method Two £5 per copy £60,000 per month Variable costs Specific fixed costs Semi-variable costs: The following estimates have been obtained: 30,000 copies 45,000 copies 65,000 copies £55,000 per month £70,000 per month £90,000 per month £47,500 per month £55,000 per month £65,000 per month It may be assumed that the fixed cost content of the semi-variable costs will remain constant throughout the range of activity shown. The company currently sells a magazine, Pressliew covering related topies to those that will be included in the new publication and consequently it is anticipated that sales of this existing magazine will be adversely affected. It is estimated that for every ten copies sold of the new magazine, sales of the existing magazine will be reduced by two copies. Sales and cost data of the existing magazine, Pressliew, are shown below: Sales 110,000 copies per month £9 per copy £5.5 per copy £80,000 per month Selling price Variable costs Specific fixed costs Questions: 1. Profit estimation Calculate, for each production method, the net increase in company profits which will result from the introduction of the new magazine, PressInsights, at each of the following levels of activity: a. 40,000 copies per month b. 50,000 copies per month c. 60,000 copies per month

Answer rating: 100% (QA)

The Press Workings for method 1 High Low method Variable cost Highest activity cost Lowest activity cost Highest activity units Lowest activity units ... View the full answer