1. Eastman Publishing Company is considering publishing an electronic textbook o

Question

1. Eastman Publishing Company is considering publishing an electronic textbook on 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 access to the book for $46 each.

a. Build a spreadsheet model to calculate the profit/loss for a given demand. What profit can be anticipated with a demand of 3500 copies?

b. Use a data table to vary demand from 1000 to 6000 increments of 200 to assess the sensitivity of profit to demand.

c. Use Goal Seek to determine the access price per copy that the publisher must charge to break even with a demand of 3500 copies.

Explanation / Answer

Part A)

The following model can be easily build in EXCEL:

For a demand of 3,500 copies, the company would incurr a loss of -$20,000

___________

Part B)

The data table with increments of 200 starting from 1,000 copies to 6,000 is given below:

___________

Part C)

The goal seek function can be derived with the use of following table:

In the goal seek function, you will select the cell containing profit figure (here, $20,000) in the "Set Cell" box. "To Value" will be put as 0, because at break even, there is no profit or loss. In "By Changing Cell", we will select the cell containing the unit price (here, $46). Once all the information has been put in the Goal Seek dialog box, we will get a price of $51.71 for a demand of 3,500 copies.

Answer for Part C is $51.71.

Amount Sales (3,500*46) 161,000 Less Variable Cost (3,500*6) 21,000 Contribution 140,000 Less Fixed Cost 160,000 Net Profit/Loss -$20,000

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