Multiple-Product Profitability Analysis, Multiple-Level Profitability Analysis

Assume

UCLA Store sells new college textbooks at the publishers suggested retail prices and

pays the publishers an amount equal to 70% of the suggested retail price. The stores other variable

costs average 5% of sales revenue and annual fixed costs amount to $420,000.

REQUIRED

a. Determine the bookstores annual break-even point in sales dollars.

b. Assuming an average textbook has a suggested retail price of $125, determine the bookstores

annual break-even point in units.

c. UCLA Store is planning to add used book sales to its operations. A typical used book costs the

store 25% of the suggested retail price of a new book. The bookstore plans to sell used books

for 75% of the suggested retail price of a new book. Assuming unit sales are unchanged, de-

scribe the effect on bookstore profitability of shifting sales toward more used and fewer new

textbooks.

d. Chicago Publishers produces and sells new textbooks to college and university bookstores.

Assume typical project-level costs total $285,000 for a new textbook. Production and dis-

tribution costs amount to 20% of the net amount the publisher receives from the bookstores.

Textbook authors are paid a royalty of 15% of the net amount received from the bookstores.

Determine the dollar sales volume required for Chicago to break even on a new textbook. This

is the amount the bookstore pays the publisher, not the bookstores sales revenue.

e. For a project with predicted sales of 10,000 new books at $125 each, determine

1. The bookstores unit-level contribution.

2. The publishers project-level contribution.

3. The authors royalties