Elizabeth Lee is a top seller on eBay. In fact, her business has grown so large that
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Roger has expressed interest in the idea but is having difficulty determining whether he will make any money on the deal without knowing the specific items Elizabeth would want to ship. Following is an income statement for the custom packaging portion of his business:
Revenues (1,200 custom packages) .... $18,000
Cartons ............... (6,000)
Cushioning ............. (600)
Tape, labels............. (1,500)
Salaried Labor ............ (4,000)
Overhead ............... (4,100)
Income................ $ 1,800
Roger’s pricing system is simple: He multiplies the cost of the carton required for the job by three. The larger the carton, he reasons, the longer it takes to pack, and the more materials it requires. He feels he has done quite well with this pricing system. If he gives Elizabeth a 20% discount, he thinks he will lose money.
Required
a. Based on the information given, would Roger make money on Elizabeth’s offer?
b. What does Roger need to consider besides the income he would receive from Elizabeth?
c. What does Elizabeth need to consider before entering into a deal with Roger?
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