Saheed Is Planning to Run a Small Web Hosting Business

question 88

Short Answer

Saheed is planning to run a small web hosting business this year for fellow college students. He can rent a web server for $100 per month. He estimates it will cost
$10/month per web page hosted, and he intends to charge a flat rate of $20 to every customer for initial setup fees.
a) What is the contribution rate that Saheed's business is expected to generate?
b) What is Saheed's break-even level of revenue per month?
c) How many web pages per month must Saheed host in order to break even?

---

Definitions:

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including the cost of the materials and labor used to create the product.

Inventory

The total value of a company's raw materials, work-in-process, and finished goods that are considered a current asset on the balance sheet.

FIFO Method

"First In, First Out," an inventory valuation method where goods first purchased or produced are the first to be sold or used.

Inventory Records

Documentation that tracks the quantity, purchase costs, and sale prices of products available for sale, crucial for accurate inventory management and financial reporting.