Question
A local business builds customized bikes that are made 100% by hand. The business has 3 types of costs: materials costs, wages paid to labor
A local business builds customized bikes that are made 100% by hand. The business has 3 types of costs: materials costs, wages paid to labor and everything else.
The business owner correctly believes that she should take everything else into account when quoting prices of bikes to potential customers. She decides that the more time it takes to make a bike, the greater the portion of these everything else costs should be applied to that bike. She decides to set a rate of $20 of these costs for every 1 hour of labor it takes to make a bike.
A customer comes in and wants a bike that is going to require $600 in materials and 10 hours of labor. She pays labor a wage of $15/hour.
What price should she quote the customer that will cover her costs AND earn her at least some profit?
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