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Walkers Book

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Qn 2: Last week we studied CVP analysis. Explain how Walker Books might use CVP in decision making. In your discussion, make sure you provide examples relating to Walker Books. (300 words) | Picture | Photo | B+W | Nonfiction | Fiction | Backlist | Unit Contribution Margin
([Total revenue-Total variable cost]/Number of units) | 1.67 | 1.57 | 1.03 | 1.81 | 1.81 | - | Profit
([Unit Contribution Margin*No of units] – total fixed cost) | -$26,642 | -$23,586 | -$24,441 | -$13,619 | -$3,738 | - | Net Profit Margin
(Net Profit/Total Revenue) | -7% | -11% | -18% | -7% | -6% | - | Market Share | 18% | 11% | 7% | 9% | 3% | 52% |
According to the CVP analysis, profit can be calculated by multiplying unit contribution margin and number of units minus total fixed costs. In this case, we assume that COGS and shipping/ warehousing/ order processing expenses are all variable even though a portion of it is fixed, since vendors often charge a certain fee to gain access to their services. Royalties are assumed to be variable cost as it is a usage-based payment. By determining the profit, it allows us to decide whether to continue or drop the book line. Based on the profit figures, we think that it will be best to drop the picture book line since it is the least profitable. However, it has the highest market share which shows that there are still a high percentage of people purchasing books from the segment (Picture) therefore we assume that profit will increase if we were to increase the number of book titles.
All costs can be classified as fixed and variable cost. We identify each of the items whether they are fixed or variable under the assumptions in Cost-volume-profit (CVP) analysis. However there is a difficulty in identifying which items are fixed and variable as it is not possible to separate costs into fixed and variable. Therefore, we identify those items as mixed

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