Decision-making and non-graphical CVP analysis Fosterjohn Press Ltd is considering launching a new monthly magazine at a selling price of 1 per copy. Sales of the magazine are expected to be 500 000 copies per month, but it is possible that the actual sales could differ quite significantly from this estimate. Two different methods of producing the maga- zine are being considered and neither would involve any additional capital expenditure. The estimated production costs for each of the two methods of manufacture, together with the addi- tional marketing and distribution costs of selling the new magazine, are summarized below:

Required:

(a) Calculate, for each production method, the net increase in company profits which will result from the introduction of the new magazine, at each of the following levels of activity: 500 000 copies per month 400 000 copies per month 600 000 copies per month (12 marks)

(b) Calculate, for each production method, the amount by which sales volume of the new magazine could decline from the anticipated 500 000 copies per month, before the company makes no additional profit from the introduction of the new publication. (6 marks)

(c) Briefly identify any conclusions which may be drawn from your calculations. (4 marks)

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Method A Method B Variable costs Specific fixed costs Semi-variable costs: 0.55 per copy0.50 per copy 80000 120 000 per month per month