Question

Break = FC even CM- (SP-vc) MKT201 Chapter 12 Pricing Problem - BH Press R 1 0 var old publishing company which markets a range of printed material literature such as paperback bestsellers and classica e Currently, the marketing manager is developing the marketing plan for the Summer introduction of the bestseller New Zealand and Ruby. There is fierce competition in the publishing instry for public awareness and distribution space in retail establishments for a pub assortment of paperback books P ustan osts for a perhack are well known. There is a one-time setup cost for the initial printing estimated at $168000. Paper printing costs are su p er page, and front-back covers cost is $0.2 book -0.011000 = 10 New Zealand's an epic book of approximately 1000 pages, will sell at retail for $57.50 retail. Or this, the retailer has a 3296 margin. BH Press, as does most publishers, uses a two-tiered wholesale distribution system. For example, BH Press publishes books at its Fielding plant and Ships them to regional independent book wholesalers who, in turn, sell and distribute the books to independent local wholesalers and chain store distribution centres. These distributors then sell to local retail stores. The local wholesaler normally earns $42 per carton of books (12 books in a carton) for a book priced at $57.50. The regional wholesaler earns $13.80 per dozen (12) books sold to local distributors BH Press is prepared to promote the introduction of New Zealand and Rugby' at all trade levels and has allocated $170,000 for trade magazine advertising directed at regional and local wholesalers. There are trade shows in Auckland, Wellington, Christchurch, Dunedin and Hamilton, which BH Press plans to attend and use special events and point-of-sale materials to get the attention of the major retail book stores (eg. Whiteouls) attending the show. BH Press has allocated $12.000 for each trade show. Additionally, a direct mail campaign to all the bookstores has been developed for a total cost of $4.375 Newspaper advertising is budgeted at $175,000, while sales force selling expenses to introduce the book are set at $30,000. Salespeople for BH Press call on the regional wholesaler. As an incentive, a salesperson earns $0.25 commission for each book sold to this group of wholesalers. Questions: UVC a) What level of dollar sales (revenue) and volume (number of books sold) is required to achieve break even? b) What level of dollar sales (revenue) and volume (number of books sold) is required to achieve a profit objective of $25,000? TFC 168000 Dawa 72,170000 54.80ALZE 6912 12000x5 = 60,000 / 0.25 4375. 0.2. 175,ooor - 10 10.45 UVC 30,00 BT 607 315

Answer 1

Break even sale = Fixed cost / Price of book- Variable cost

Fixed cost for book Publication

Setup cost	168000
Promotion	170000
Trade show 60000		5*12000
Book stores	4375
Newspaper	175000
introduction	30000
	547375

Price of book for publisher

Profit margin/book
Regional wholesaler	1.15	13.8/12
local wholesaler	3.5	42/12
Retail	13.93	57.5-(57.5/1.32)
Total margin	18.58

Price of book for publisher = 57.5 -18.58 = 38.92

Variable cost per book:

printing	10	0.01*1000
book cover	0.2
Commission	0.25
	10.45

Answer a) Break even =547375 / (38.92-10.45) = 19226.38 i.e. 19227 books

Answer b) To earn Profit = Break even + Desired profit / ( Price of book- Variable cost)

= 19227+25000/(38.92-10.45) = 20105 books