*PLEASE CHECK NUMBERS FOR ACCURACY AND ROUNDING. PLEASE PROVIDE EXPLAINATIONS WI

Question

*PLEASE CHECK NUMBERS FOR ACCURACY AND ROUNDING. PLEASE PROVIDE EXPLAINATIONS WITH FORMULAS; PARTS A-C*

Problem 6A-1

A book publisher has fixed costs of $340,000 and variable costs per book of $8.00. The book sells for $23.00 per copy.

a. How many books must be sold to break even? (Roundup your answer to the next whole number.)

Books to be sold            

b. If the fixed cost increased, would the new break-even point be higher or lower?

c. If the variable cost per unit decreased, would the new break-even point be higher or lower?

Higher Lower It would remain the same There is insufficient information to answer this question

Explanation / Answer

Solution:(a):

Given in the question:

Fixed Cost = $340000

Variable Cost = $8 per book

Selling price = $23 per book

So breakeven can be calculated as follows:

(No. of Books* Selling price) = fixed cost + (No. of books * Variable Cost)

No of books * 23 = 340000 + No of books * 8

15 * No. of books = 340000

No. of books = 340000/15

No. of books for Breakeven = 22666.67 or 22667 books required for Breakeven point.

Solution(b):

If fixed cost increased than breakeven point would be higher because breakeven point is directly proportional to the fixed point, If fixed point is 350000

than no. of books sold for breakeven is 350000/15 = 23334 which is higher

so its answer is A. i.e. Higher

Solution(c):

If variable cost per unit decresed than breakeven point should be lower

if variable cost is 6 rather than 8 than

breakeven point should be = 340000/17 = 20000

So its answer is B. ie. lower

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