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.

(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 4,200 to 4,800 copies.
	(ii) Breakeven appears in the interval of 4,000 to 4,200 copies.
	(iii) Breakeven appears in the interval of 3,800 to 4,000 copies.
	(iv) Breakeven appears in the interval of 3,600 to 3,800 copies.
	- Select your answer -Option (i)Option (ii)Option (iii)Option (iv)Item 2
(c)	Use Goal Seek to answer the following question. With a demand of 3,500 copies, what is the access price per copy that the publisher must charge to break even?
	If required, round your answers to two decimal places.
	$

Answer 1

Let D= Demand

Fixed cost = $160,000

Total Variable Cost = $6*D

Revenue = $46*D

Total Cost = Fixed cost +total variable cost = 160000+6D

Total Profit = Revenue - Total Cost = 46D - (160000+6D)

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?

Prepare the following sheet

В 3500 160000 A 1 Demand 2 Fixed Cost 3 Variable Cost per Book 4 Total Variable Cost 5 Total Cost 6 Price of Single user access 7 Total Revenue 8 Profit =B3*B1 =B4+B2 46 =B6*B1 =B7-B5

Get this

1 Demand 2 Fixed Cost 3 Variable Cost per Book 4 Total Variable Cost 5 Total Cost 6 Price of Single user access 7 Total Revenue 8 Profit 3500 $160,000 $6 $21,000 $181,000 $46 $161,000 ($20,000)

ans:

——$20000

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.

Create the following table

- A B Demand 3500 160000 Profit =B8 1 Demand 2 Fixed Cost 3 Variable Cost per Book 4 Total Variable Cost 5 Total Cost 6 Price of Single user access 7 Total Revenue 8 Profit =B3*B1 =B4+B2 46 =B6*B1 =B7-B5 1000 =D3+200 =D4+200 =D5+200 =D6+200 =D7+200 D8+200 =D9+200 =D10+200 =D11+200 =D12+200 =D13+200 =D14+200 =D15+200 =D16+200 =D17+200 =D18+200 =D19+200 =D20+200 =D21+200 =D22+200 =D23+200 =D24+200 =D25+200 =D26+200 =D27+200

get this

A - C D E Demand Profit ($20,000) 1000 1200 1 Demand 2 Fixed Cost 3 Variable Cost per Book 4 Total Variable Cost 5 Total Cost 6 Price of Single user access 7 Total Revenue 8 Profit 9 10 3500 $160,000 $6 $21,000 $181,000 $46 $161,000 ($20,000) 1400 1600 1800 2000 2200 2400 2600 2800 3000 11 12 13 14 15 16 3200 3400 3600 3800 4000 4200 4400 4600 4800 5000 5200 5400 5600 5800 6000

select the table created and using data--->what if analysis--->data table set up the following

B F G H I 3500 $160,000 $6 1 Demand 2 Fixed Cost 3 Variable Cost per Book 4 Total Variable Cost 5 Total Cost 6 Price of Single user access 7 Total Revenue 8 Profit D E Demand Profit ($20,000) 1000 1200 1400 1600 1800 2000 2200 2400 Data Table ? $21,000 $181,000 $46 $161,000 ($20,000) X Row input cell: Column input cell: $B$1| L OK Cancel Cancel con

get this

А в с 3500 1 Demand 2 Fixed Cost 3 Variable Cost per Book 4 Total Variable Cost 5 Total Cost 6 Price of Single user access 7 Total Revenue 8 Profit $160,000 $6 $21,000 $181,000 $46 $161,000 ($20,000) Demand Profit ($20,000) 1000 - 120000 1200 -112000 1400 104000 | 1600 -96000 1800 -88000 2000 -80000 2200 -72000 2400 -64000 2600 -560001 2800 -48000 3000 -40000 3200 -32000 3400 -24000 3600 - 16000 3800 8000 4000 42008000 4400 16000 4600 24000 4800 32000 5000 40000 5200 48000 5400 56000 5600 64000 5800 72000 6000 80000

The Breakeven occurs at demand = 4000

ans: (ii) Option: Breakeven appears in the interval of 4,000 to 4,200 copies.

c) With a demand of 3,500 copies, what is the access price per copy that the publisher must charge to break even?

set up using data--->what if analysis---> goal seek

C D E F B 3500 $160,000 Goal Seek ? X $6 Set cell: set Profit $B$8 A 1 Demand T 2 Fixed Cost 3 Variable Cost per Book 4 Total Variable Cost | 5 Total Cost 6 Price of Single user access 7 Total Revenue 8 Profit $21,000 $181,000 To value: to O $46! $161,000 By changing cell: $B$6 access price per copy L OK Cancel ($20,000)

get this

A 1 Demand 2 Fixed Cost 3 Variable Cost per Book 4 Total Variable Cost 5 Total Cost 6 Price of Single user access 7 Total Revenue 8 Profit 3500 $160,000 $6 $21,000 $181,000 $52 $181,000 $0

ans:  the access price per copy that the publisher must charge to break even is $52