Sensitivity Analysis: Peterson Publishing Corporation is currently selling a line of executive education courses at a price of $90 per course. The company maintains office and publishing facilities at an annual fixed cost of $800,000 for office and administration and $720,000 for publishing operations. The variable costs of each course unit include $15 for promotion, $6 for administration, and $12 for the published materials. At the present time, the company distributes 25,000 course units per year. Management is dissatisfied with the profitability of current operations and wishes to investigate the profit effects of several alternatives. The following questions have been raised by members of management in an attempt to evaluate the alternatives (each alternative should be considered independently.

Required:

a. What is the break-even level in terms of unit sales?

b. The company can hire an educational representative to sell the course material independently of current sales activity. Current sales would remain the same, but the representative should be able to sell an additional 10,000 units at the $90 price. Promotion costs would amount to $20 per unit, and the representative would receive a commission of 25 percent of the sales price of each course unit. All other costs would remain unchanged. What is the profit effect of hiring the representative?

c. A publishing company has offered to produce the course materials at a price of $40 per course unit regardless of the number of course units. If this alternative is chosen, the fixed and variable costs of the current publishing operation would be eliminated. What is the profit effect of this alternative if sales remain at 25,000 units? If sales increase to 40.000 units?