Question

You are starting your own e-commerce business. You decide to form a company that will sell comics books online. You estimate that the annual cost of this business will be as follows:

Table 1
Technology (Web design and maintenance)	$5,000
Postage and handling	$1,000
Miscellaneous	$3,000
Shipping supply	$2,000
Equipment	$4,000
Overhead	$3,000

You can buy each book for $20 and you plan to sell each book for $30. You expect to sell about 1,200 books per month online.

Assume all of the annual costs in table 1 are your fixed cost.

If you have to give up a full-time job that paid $55,000 per year, is this business worth pursuing[ ] by how much in dollars per year [ [ ?

Enter "is" or "is not" for your 1st answer. (do not put in quotation marks)

Enter only numbers for your 2nd answer. (do not put in comma or $) (two decimal places)

For example, if your calculation is $10.192374, put in your answer as 10.19

For example, if your calculation is $10.197124, put in your answer as 10.20

For example, if your calculation is $10.00, put in your answer as 10.0

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You are starting your own e-commerce business. You decide to form a company that will sell comics books online. You estimate that the annual cost of this business will be as follows:

Table 1
Technology (Web design and maintenance)	$5,000
Postage and handling	$1,000
Miscellaneous	$3,000
Shipping supply	$2,000
Equipment	$4,000
Overhead	$3,000

You can buy each book for $20 and you plan to sell each book for $30. You expect to sell about 1,200 books per month online.

Assume all of the annual costs in table 1 are your fixed cost. What is your total cost per month? (Enter only numbers) (do not put in comma or $) [ [

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You are starting your own e-commerce business. You decide to form a company that will sell comics books online. You estimate that the annual cost of this business will be as follows:

Table 1
Technology (Web design and maintenance)	$5,000
Postage and handling	$1,000
Miscellaneous	$3,000
Shipping supply	$2,000
Equipment	$4,000
Overhead	$3,000

You can buy each book for $20 and you plan to sell each book for $30. You expect to sell about 1,200 books per month online.

Assume all of the annual costs in table 1 are your fixed cost. What is your profit per month? (Enter only numbers) (do not put in comma or $) [ ]

Answer 1

Solution:-

(A). Total fixed cost per year ($) = 5,000 + 1,000 + 3,000 + 2,000 + 4,000 + 3,000 = 18,000

Total Revenue per year ($) = 1,200 x 12 x 30 = 432,000

Total variable cost per year ($) = 1,200 x 12 x 20 = 288,000

Economic profit ($) = Total revenue - Total variable cost - Total fixed cost - Salary from job

                               = 432,000 - 288,000 - 18,000 - 55,000

                               = 71,000

As the business is earning positive economic profit, business is worth pursuing by $71000.

(B). Total Cost = Total Fixed Cost + Total Variable Cost

Total Fixed Cost = {5000 + 1000 + 3000 + 2000 + 4000 + 3000}

                                 = 18000

Total Fixed Cost Per Month = 18000 / 12 = 1500 per month

Total Variable Cost = 20 * 1200 = 24000

Total Cost Per Month = 1500 + 24000

                                  = 25500

(C). Total Cost = Total Fixed Cost + Total Variable Cost

Total Fixed Cost = {5000 + 1000 + 3000 + 2000 + 4000 + 3000}

                                 = 18000

Total Fixed Cost Per Month = 18000 / 12 = 1500 per month

Total Variable Cost = 20 * 1200 = 24000

Total Cost Per Month = 1500 + 24000

                                           = 25500

Total Revenue Per Month = 30 x 1200 = 36000

Total Profit Per Month = 36000 - 25500 = 10500