Question: Patsy Smith is planning to sell her special knife for $15 per unit. She purchases units from a local distributor for $6 each. She can

Patsy Smith is planning to sell her special knife for $15 per unit. She purchases units from a

local distributor for $6 each. She can return any unsold units for a full refund. Fixed costs for booth rental, including lighting and security is $4500.

Required

a) Compute the breakeven point in units sold. (5 marks)

b) Suppose the unit purchased is $5 instead of $6, the fixed cost increases by $500, but

the selling price is unchanged. Compute the new breakeven point in units sold.

c) Using the above data, explain how cost behaviour affects Patsy Smith's decision making?

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