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Elephant Books sells paperback books for $7 each. The variable cost per book is $5. At current annual sales of 200,000 books, the publisher is

Elephant Books sells paperback books for $7 each. The variable cost per book is $5. At current annual sales of 200,000 books, the publisher is just breaking even. It is estimated that if the Elephant Books advertise, they can sell their paperback books for $10 instead of $7 per book. Assume authors' royalties and variable cost per book stay the same and unit sold remain constant; how much more money can the publisher put into advertising (a fixed cost) and still reach a break even and keep its operating leverage constant?

  • A. $160,000
  • B. $720,000
  • C. $300,000
  • D. $200,000
  • E. $600,000

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