Question

Madeline and Harris have decided to start a new business. Madeline is a graphics art major who recently designed a unique and copyrighted design that could be appealing to baseball fans. Harris who is majoring in sports marketing loves the design,  and convinced Madeline to test market her design on a baseball cap/ hat. After doing some research they decide lease an outdoor vendor space on Yawkey Way next to Fenway Park. The plan is to start with baseball caps using the design Madeline created and to market and sell these hats to people attending Red Sox games. If things go well they plan to add t-shirts and jackets later.

Madeline and Harris have collected some preliminary information:

Leasing space on Yawkey Way will cost $10,000 for the season

City fees and taxes will cost $2,500

The cost to buy the hats with Madeline’s logo will be $5

They plan to sell the hats at $20

They are guessing sales will be between 25  and 40 hats a game

They would like to make $5,000 each after paying for all costs and expenses

Madeline and Harris have agreed that they will also need to hire a person to manage the booth.  They are planning to pay this person $15 an hour, and figure it will take 6 hours for each game.

-        Madeline and Harris have hired you as their management consultant to answer the following question

-        What are their fixed and variable costs?

Answer 1

The following are the fixed and variable costs :

1. Fixed cost :

Leasing cost - $10,000

2 . Variable cost :

City fees and taxes $2500

Cost to buy a hat : $5

Selling expenses: $20 per hat

Expenses of managing person : $ 90 per game