Jonathan is considering opening a shop for online baseball memorabilia. He has two options. He can build the web site himself and only pay for hosting. This would cost him $2,000/year. The average item for sale is $4.02. Average costs associated with each sale are $2.98. His second option is to use an existing e-commerce service. This incurs an additional monthly cost of $15/month. The site takes a cut of his sales of $0.29/item, so he is planning on also increasing his prices by $0.50/item. The remaining costs stay the same. What is the annual fixed cost for the e-commerce site option?

Question

Maddison Santiago

Business

26 August, 04:06

Jonathan is considering opening a shop for online baseball memorabilia. He has two options. He can build the web site himself and only pay for hosting. This would cost him $2,000/year. The average item for sale is $4.02. Average costs associated with each sale are $2.98. His second option is to use an existing e-commerce service. This incurs an additional monthly cost of $15/month. The site takes a cut of his sales of $0.29/item, so he is planning on also increasing his prices by $0.50/item. The remaining costs stay the same. What is the annual fixed cost for the e-commerce site option?

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Answers (1)

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Lance · Answer 1

The annual fixed cost of e-commerce option is $2,180.00 as calculated below:

Explanation:

In calculating the e-commerce option annual fixed cost, it is very imperative that one understands the question inside-out. In other words, one needs to understand the e-commerce will not just cost $15 per month, but it costs $15 per month in addition to the $2000 annual cost cited in the first option.

In essence, the fixed cost of the e-commerce option can be computed thus:

Fixed cost per year=$2000 + (15*12)

Fixed cost per year=$2000+$180

Fixed cost per year=$2,180

Fixed cost is that cost that remained unchanged at given scale of operation, as it is seen here it is not based on the volume of sales or output produced.