Multiple Product CVP Analysis Headlines Publishing Company (HPC) specializes in international business news publications. Its principal product is HPC-Monthly, which is mailed to subscribers the first week of each month. A weekly version, called HPC-Weekly, is also available to subscribers over the Web at a higher cost. Sixty percent of HPC’s subscribers are nondomestic customers. The company experienced a fast growth in subscribers in its first few years of operation, but sales have begun to slow in recent years as new competitors have entered the market. HPC has the following cost structure and sales revenue for its subscription operations on a yearly basis. All costs and all subscription fees are in U.S. dollars.
Fixed Cost |
|
$306,000 per year |
|
Variable Costs |
|
Mailing | $0.60 per issue |
Commission | 3.00 per subscription |
Administrative | 1.50 per subscription |
Sales Mix Information (constant in sales units) | |
HPC-Weekly | 20% |
HPC-Monthly | 80% |
Selling Price |
|
HPC-Weekly | $47 per subscription |
HPC-Monthly | 19 per subscription |
Required Use these data to determine the following:
1. Contribution margin for weekly and monthly subscriptions.
2. Contribution margin ratio for weekly and monthly subscriptions.
3. HPC’s breakeven point in sales units and sales dollars.
4. HPC’s breakeven point to reach a target before-tax profit of $75,000.
5. What are the critical success factors for HPC? For its domestic subscribers? For its international subscribers? How can CVP analysis be used to make HPC more competitive?
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