Getting to school for your 8 a.m. class doesn't leave much time for breakfast, and you are quite hungry by the time class ends

It is a long walk to the cafeteria, the lines are long once you get there, and you find yourself having to decide between having breakfast and getting to your next class on time. Many of your friends have expressed the same problem. The administration has agreed to let you set up a table just outside the building where you will sell various snacks for $1 each. You have agreed to pay the administration $400 per month and salaries to your friends to run the business will be another $400 per month. It will cost you 60 cents each to buy the pre-packaged snacks. You believe you can sell 2,500 snack packs per month.

a. What are the total fixed costs per month?
b. What are the total variable costs per month?
c. What is the fixed cost per snack pack?
d. What is the variable cost per snack pack?
e. What is the average cost per snack pack?
f. What is the average profit margin per snack pack?
g. Based on your analysis, should you start the snack pack business?
What will be an ideal response?

a. $800 ($400 + $400 )
b. $1,500 (60 cents × 2,500 snack packs)
c. 32 cents ($800/2,500 snack packs)
d. 60 cents (given in the problem)
e. $.92
f. $0.08 ($1 - 60 cents - 32 cents)
g. Yes, I will make 8 cents per snack pack and if I sell 2,500 I will make a profit of $200.