Question

Eastman Publishing Company is considering publishing an electronic textbook about spreadsheet applications for business. The fixed cost of manuscript preparation, textbook design, and web-site construction is estimated to be $160,000. Variable processing costs are estimated to be $6 per book. The publisher plans to sell single-user access to the book for $46.Required:A) Build a spreadsheet model in Excel to calculate the profit/loss for a given demand. What profit can be anticipated with a demand of 3,500 copies?For subtractive or negative numbers use a minus sign.B) Use a data table to vary demand from 1,000 to 6,000 in increments of 200 to test the sensitivity of profit to demand. Breakeven occurs where profit goes from a negative to a positive value, that is, breakeven is where total revenue = total cost yielding a profit of zero. In which interval of demand does breakeven occur?(i) Breakeven appears in the interval of 3,600 to 3,800 copies.(ii) Breakeven appears in the interval of 4,000 to 4,200 copies.(iii) Breakeven appears in the interval of 4,200 to 4,400 copies.(iv) Breakeven appears in the interval of 4,400 to 4,600 copies.

Answer 1

Answer:

(a). Loss = $20,000

(b). Breakeven appears in the interval of 4,000 to 4,200 copies.

Explanation:

According to the scenario, computation of the given data are as follow:-

a). Sales = sale units × selling price per unit

= 3,500 × $46 = $161,000

variable cost = sale units × variable cost per unit

= 3,500 × $6 = $21,000

contribution = sales - variable cost

= $161,000 - $21,000 = $140,000

Net income = contribution - fixed cost

= $140,000 - $160,000 = -$20,000  (Loss)

(b). The attachment is attached below:

According to the analysis, (ii) breakeven appears in the interval of 4,000 to 4,200 copies.