Leslie Mittelberg is considering the wholesaling of a leather handbag from Kenya. She must travel to Kenya to check on the quality and transportation. The trip will cost 3000. The cost o the handbag is $10 and the shipping to the US can occur through the postal system for $2 per handbag or through a freight company which will ship a container that can hold up to 1000 handbags at the cost of $1000. The freight company will charge $1000 even if less than 1000 handbags are shipped. Leslie will try to sell the handbags to retailers for $20 each. Assume there are no other costs or benefits.
a) What is the break-even point if shipping is through the postal system?
b) How many units must be sold if Leslie uses the freight company and she wants to have a profit of $1000?
c) At what output level would the two shipping methods yield the same profit?
d) Suppose a large discount store asks to buy additional handbags beyond normal sales. Which shipping method should be used and what is the minimum sales price Leslie should consider in selling those 1000 handbags?