Marisha’s grandmother wants to liquidate her library. She has over 10,000 books, many of them first editions or rare books. Since buyers are likely to come from nearly anywhere in the world, Marisha has decided to sell these through the Internet. Marisha needs to purchase a new computer, a digital camera to photograph the books, an Internet business software program and several pieces of equipment to help her package and mail the books. These will total $5,000. The Website itself costs $20 per month and she assumes she’ll spend another $100 per month advertising. She plans to work up to 40 hours a week and feels her time is worth $24 per hour. Of these 40 hours she assumes that half of that time will be devoted to creating and updating her Website, accounting and other paperwork not directly attributed to a specific book. She anticipates spending about 20 minute per book in photographing it,
writing descriptions and packaging it for shipping. She expects shipping costs, insurance on each package, and packaging materials to average $5 per book. Marisha’s grandmother will split half of the selling price of each book evenly with Marisha. She plans to do this for no more than two years, at which point she will donate any leftover books.
- What are Marisha’s fixed costs?
- What are Marisha’s variable costs?
- If she were able to sell all books within two years, at what average price must she sell them to achieve breakeven?
- Considering the time she is planning to invest in this project, can she sell the books in two years?
- Checking on the Internet, Marisha finds that most rare or first edition books average about $50. Should she sell her grandmother’s books under the criteria set above? What profit or loss would she make at this price assuming that all her original estimates hold?
- Before she is able to get started – before she is even able to buy any supplies – a used book seller offers her $250,000 for all the books. Assuming that all her original estimates hold, should she do this?
