1. On the basis of the cost figures, create a spreadsheet and compare the estimated annual costs for the various online payment mechanisms for three hypothetical companies. The first company sells digital content for about $20 each and anticipates about 5,000 sales per year. The second company sells music for $0.75 per song, but expects people to download and pay 5 to 10 songs at a time. It anticipates 500,000 customers. The third company sells stereo and video equipment ranging from $400 to $2,000 per item, and expects about 10,000 sales the first year. On the basis of the data, recommend a payment mechanism for each company?
Payment Method Fixed Cost Fixed Fee Discount Fee Fraud/Insurance
Cash Low except for security $0.00 0% Physical security
Check-physical $20 / month $0.25 1.7% Included
Check-electronic $20 / month $0.25 2.5% Included
Credit Card-physical $10 / month
Minimum $25 $0.25-$0.50 1.6% Covered: 0.08% fraud average
Credit Card-electronic $30-$50 / month
Minimum $25 $0.25-$0.50 2.6% - 4% Not Covered: 0.25% fraud average
Debit Card Setup/Keypads $0.35-$0.55 0% - 2% None
PayPal None $0.30 2.2% - 2.9% Covered for physical shipment
The question asks for a comparison of the total costs for the merchant depending on the various payment methods. So, what you need to do is to compute sales, cost, and operating profits based on the information in the question (sales) and in the cost figure chart (payment costs -- credit card and others issuers charge the merchant for use of their services.)
See attached file for full problem description.
The solution calculates a comparison of costs for different merchants based on the chosen payment method.