1. List the variable costs for one of your company's products or services, with a cost estimate for each variable cost. If you have more than one product or service, choose one of them. (3.0 points)

For example, the variable costs for a company that makes t-shirts and ships them to customers might look like this:
T-shirts--$6 each
Paint--about $1.25 per shirt
Labor--about $3 per shirt (because workers earn $9 per hour and can make 3 shirts per hour, or because workers are paid by the shirt)
Shipping--$4 per shirt


2. Add the variable costs per unit to get the total cost of goods or services sold per unit. (1.0 points)
TIP: Your minimum selling price will have to be higher than this number. Next, you'll calculate fixed costs to find out how much higher it needs to be.

For example, the total cost of goods or services sold for the t-shirt company would be $14.25.







3. List the fixed costs for your company, with estimates for how much each cost will be per month. If some of your fixed costs are one-time purchases, like a computer or equipment, divide the total cost of the purchase by the number of months you expect to use the purchase. (3.0 points)

For example, the fixed costs for the t-shirt company might look like this:
Rent--$300 per month
Utilities (water and electricity)--$50 per month
Telephone and Internet service--$50 per month
Computer and printer--$1,200 total cost, divided by 60 months total expected use, is $20 per month
Office supplies--$25 per month


4. Add the fixed monthly costs to get the total fixed costs per month. (1.0 points)
TIP: Now you know that your minimum selling price has to be high enough to cover these fixed costs too. You'll calculate your break even point next.

For example, the monthly fixed costs for the t-shirt company would be $445.


5. Calculate the selling price you would need in order to break even if your company sold 100 units of your product or service, using the steps below.

a. Divide your total monthly fixed costs (from question 4 above) by 100. This is the total fixed cost per unit. (1.0 points)

For example, for the t-shirt company, this is $445 divided by 100, which is $4.45.


b. Add the total fixed cost per unit (from 5a above) to the total cost of goods or services sold per unit (from question 2 above). This is the selling price you would need in order to break even if you sold 100 units per month. (1.0 points)

For example, for the t-shirt company, this is $14.25 plus $4.45, which is $18.70. This means the t-shirt company would need a selling price of at least $18.70 to break even if it sold 100 shirts.


6. Calculate the number of units you would need to sell in order to break even, using a selling price of your choice. Use the steps below.

a. Choose a selling price that is higher than your total cost of goods or services sold per unit (the amount from question 2 above) but that is different from the selling price from question 5b above. Pick a price you think is reasonable. (2.0 points)

For example, the t-shirt company might decide that it is reasonable to price the shirts at $20 instead of $18.70.


b. Subtract the total cost of goods or services sold per unit (the amount from question 2 above) from the selling price. This is the gross profit per unit. (1.0 points)

For example, the t-shirt company would take its $20 price and subtract $14.25, which leaves $5.75.


c. Divide the total monthly fixed costs by the gross profit from 6b above. This tells you how many units you must sell to break even. (1.0 points)

For example, the t-shirt company would take its $445 monthly costs and divide that number by $5.75, which is 77.4. The company would round that number up to 78, so it would have to sell 78 shirts per month at the $20 price to break even.


7. Describe two things you could emphasize about your product in order to help make it attractive to your target market. What makes you think these things matter to this target market? (2-8 sentences. 2.0 points)


8. Identify a competitor to your company and find out what their prices are for similar products or services. Do you want your prices to be higher, lower, or the same as your competitors? Why? (2-6 sentences. 2.0 points)


9. Will your company use cost-based markup, or retail-based markup? Why? (2-5 sentences. 2.0 points)


10. Do you think the demand for your product will be elastic or inelastic? Why? (2-5 sentences. 2.0 points)


11. Describe at least one pricing strategy you will use and explain why you think it will be effective. (2-5 sentences. 3.0 points)