Please answers all parts. You are a newspaper publisher. You are in the middle o

Question

Please answers all parts.

You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $700,000 per month, and you have contractual labor obligations of $1,000,000 per month that you can't get out of. You also have a marginal printing cost of $0.25 per paper as well as a marginal delivery cost of $0.10 per paper Instructions: Round your answers to 2 decimal places. a. If sales fall by 20 percent from 1,000,000 papers per month to 800,000 papers per month, what happens to the AFC per paper? It from per paper to per paper b. What happens to the MC per paper? c. What happens to the minimum amount that you must charge to break even on these costs? It from per paper to per paper

Explanation / Answer

Rental Contract = $700,000

Labor Obligation = $1,000,000

Marginal cost of printing = $0.25 per paper

Marginal delivery cost = $0.1 per paper

So, Total Fixed cost = Rental contract + Labor Obligation

= $1,700,000

Total variable cost per paper = $0.35

For, 1,000,000 papers, AFC (Average Fixed cost) = 1,700,000 / 1,000,000

=1.7

For, 800,000 papers, AFC (Average Fixed cost) = 1,700,000 / 800,000

= 2.125

Breakeven required for 1,000,000 sales:

1.7 + 0.35

= $2.05 per paper

Breakeven required for 800,000 sales:

2.125 + 0.35

= $2.475

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