GMAT Success From "Cost Accounting". Horngren, Foster & Datar Adapted by C. Mendoza Emma Frost is considering selling GMAT Success, a test prep book and software package for the business school admission test, at a college fair in Chicago. Emma knows she can purchase this package from a wholesaler at $120 per package, with the privilege of returning all unsold packages and receiving a full $120 refund per package. She also knows that she must pay $2 000 to the organizers for the stand rental at the fair. She will incur no other costs. She must decide whether she should rent the stand. Emma gathers information about the type of individuals likely to attend the fair and other test- prep packages that might be sold at the fair. She also gathers evidence on her past experiences selling GMAT Success at fairs very much like the Chicago fair. Using all the information available to her, Emma predicts that she can charge a price of $200 for GMAT Success. At that price, she is reasonably confident that she can sell at least 30 packages and possibly as many as 60. Question n 1: What will be the operating profit if sales are 20 packages? 40 packages? Question n 2: What will be the breakeven point in units? What will be breakeven revenues? What will be the safety margin if expected sales are 40 packages? Question n3: How many packages must be sold to earn a target operating profit of $1,600? Emma is contemplating whether to reduce the selling price to $175. At this price, she thinks she will sell 50 units (instead of 40). At this quantity, the test-prep package wholesaler who supplies GMAT Success will sell the packages to Emma for $115 per unit instead of $120. Question n4: Should Emma reduce the selling price? 17