The world-famous discounter, Fernwood Booksellers, specializes in selling paperbacks 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 authors' royalties are reduced, the variable cost per book will drop by $1.Assume authors' royalties are reduced and sales remain constant; how much more money can the publisher put into advertising (a fixed cost) and still break even?

Question

Quizplus · Accepted Answer

The variable cost per book decreases from $5 to $4, saving $1 per book. With annual sales of 200,000 books, the savings amount to $200,000. This amount can be allocated to advertising while maintaining the break-even point, as it directly impacts the fixed costs without changing the revenue.

The World-Famous Discounter, Fernwood Booksellers, Specializes in Selling Paperbacks for $7