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?

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.

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