Multiple-Product Profitability Analysis, Multiple-Level Profitability Analysis College Avenue Bookstore sells new college textbooks at the publishers’ suggested retail prices. It then pays the publishers an amount equal to 75 percent of the suggested retail price. The store’s other variable costs average 5 percent of sales revenue and annual fixed costs amount to $360,000.

Required

a. Determine the bookstore’s annual break-even point in sales dollars.

b. Assuming an average textbook has a suggested retail price of $120, determine the bookstore’ s annual break-even point in units.

c. College Avenue Bookstore 1s planning to add used book sales to its operations. A typical used book costs the store 25 percent of the suggested retail price of a new book. The bookstore plans to sell used books for 75 percent of the suggested retail price of a new book. Assuming unit sales are unchanged, describe the effect on bookstore profitability of shifting sales toward more used and fewer new textbooks.

d. College Publishing produces and sells new textbooks to college and university bookstores.

Typical project-level costs total $325,000 for a new textbook. Production and distribution costs amount to 20 percent of the net amount the publisher receives from the bookstores. Textbook authors are paid a royalty of 15 percent of the net amount received from the bookstores.

Determine the dollar sales volume required for College Publishing to break even on a new textbook. This is the amount the bookstore pays the publisher, not the bookstore’s sales revenue.

e. Fora project with predicted sales of 8,000 new books at $120 each, determine:

1. The bookstores’ contribution.

2. The publisher's contribution.

3. The author’s royalties.