The University Bookstore sells both new and used textbooks. New textbooks are sold to students at the publisher’s suggested retail price and are purchased from publishers for 75% of the suggested retail price. University Bookstore also incurs additional variable costs in selling a new textbook; variable selling costs amount to 5% of the publisher’s suggested retail price.

University Bookstore sells used textbooks for 75% of the price of a new textbook. However, University Bookstore can purchase a used textbook for 25% of the suggested retail price of a new textbook. Variable selling costs (in dollars per textbook) are the same for both new and used textbooks. University Bookstore’s annual fixed costs amount to $360,000.

Required:

a. If used books account for 40% of revenue, what is University Bookstore’s breakeven revenue?

b. When students purchase a textbook for a course, they purchase either a used book or a new book, but not both. On average, would University Bookstore prefer to sell a student a new textbook or a used textbook? Why?

c. The University Bookstore has decided that, for fairness reasons, it should price used textbooks so that the contribution margin ($ contributed toward profit) per used book is the same as the current contribution margin on a new book. To accomplish this objective, what would the price of a used textbook be as a percentage of the price of a new textbook?