Southeast u's campus book store sells course packs for $15.00 each, the variable cost per pack is $11.00, fixed costs for this operation are $300,000, and annual sales are 100,000 packs. the unit variable cost consists of a $4.00 royalty payment, vr, per pack to professors plus other variable costs of vo = $7.00. the royalty payment is negotiable. the book store's directors believe that the store should earn a profit margin of 10% on sales, and they want the store's managers to pay a royalty rate that will produce that profit margin. what royalty per pack would permit the store to earn a 10% profit margin on course packs, other things held constant?

From the information given, the royalty per pack that would permit the store to earn a 10% profit margin on coursepacks, other things held constant is: "$3.50 (Option D).

What is a profit margin?

A profit margin is the percentage amount by which the proceeds or revenue from sales goes beyond the costs in the operations of a business.

What is the Calculation?

Current profit (CP) is given as = PQ − VRQ − VOQ − F

→ $1,500,000 − $400,000 − $700,000 − $300,000

CP = $100,000

Target profit (TP) = 0.10(PQ) = $150,000

To get TP, we state:

(TP) = PQ − VR Q − VO Q − F = 0.10(PQ) = $150,000

Target VR = P − 0.1P − VO − F/Q = 0.9P − VO − F/Q = $3.50

Cross Check:

Profit with Royalty Payment (VR) = P × Q − VR × Q − VO × Q − FC = 10% of Sales

That is

= $1,500,000 − $350,000 − $700,000 − $300,000

= $150,000.

Hence the correct answer is Option D. See the attached for the full question.

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