Victoria Magazines Ltd is considering launching a new monthly magazine at a selling price of
£1 per copy. Sales of the magazine are expected to be 500,000 copies per month, but it is possible that the actual sales could differ quite significantly from this estimate.
Two different methods of producing the magazine are being considered and neither would involve any additional capital expenditure. The estimated production costs for each of the two methods of manufacture, together with the additional marketing and distribution costs of selling the new magazine, are summarised below:
Method A Method B
Variable costs 55p per copy 50p per copy
Specific fixed costs £80,000 per £120,000 per month month
In addition to the variable and specific fixed costs, semi-variable costs are expected to be incurred as follows:
Semi-variable costs:
Method A Method B
350,000 copies £55,000 per month £47,500 per month
650,000 copies £85,000 per month £62,500 per month
Variable element of semi-variable cost 10p per copy 5p per copy
It may be assumed that the fixed cost element and the variable cost per unit components of the semi-variable costs will remain constant throughout the range of activity shown.
The company currently sells a magazine covering related topics to those that will be included in the new magazine and consequently it is anticipated that sales of this existing magazine will be adversely affected. It is estimated that for every ten copies sold of the new publication, sales of the existing magazine will be reduced by one copy.
Sales and cost data of the existing magazine are shown below:
Sales 220,000 copies per month
Selling price 85p per copy
Variable costs 35p per copy
Specific fixed costs £80,000 per month

REQUIRED:
(a) Ignoring the introduction of the new magazine, calculate