Hoot Washington is the newly elected leader of the Republican Party. Media Publishers is negotiating to publish Hoot's Manifesto, a new book that promises to be an instant best seller. The fixed costs of producing and marketing the book will be $R500000.$ The variable costs of producing and marketing will be R$40$ per copy sold. These costs are before any payment to Hoot. Hoot negotiates an up$-$front payment of R$3$ million, plus a $15\%$ royalty rate on the net sales price of each book. The net sales price is the listed bookstore price of R$300,$ minus the margin paid to the bookstore to sell the book. The normal bookstore margin of $30\%$ of the listed bookstore price is expected to apply.

 

 

Required:

$3\mathrm{.}1$ Prepare a CVP graph for Media Publishers.

$3\mathrm{.}2$ How many copies must Media Publishers sell to:

a$.$ Breakeven?

b$.$ Earn a target operating income of R$2$ million?

$3\mathrm{.}3$ Examine the sensitivity of the breakeven point on the following changes:

a$.$ Decreasing the normal bookstore margin to $20\%$ of the listed bookstore price of R$300.$

b$.$ Increasing the listed bookstore price to R$400$ while keeping the bookstore margin at $30\%.$

c$.$ Comment on the results.