Mr. Reed is considering starting his own business. He has worked for a large corporation all his life and desires a change of pace. He is most interested in retail merchandising, but does not know what products his new business should sell. Mr. Reed is unsure about how to proceed with this major change in his life and has hired a consulting firm to help.

Assume that you have been assigned to the consulting group that will advise Mr. Reed.

Required: Your group is to prepare a report that recommends a particular product line for Mr. Reed’s new retail merchandising business. In addition, your report should recommend ways for Mr. Reed to gather information about the various costs associated with the merchandising business you have recommended. Finally, your report should explain how costs are classified as variable, fixed, and mixed costs, and why such classification by cost behavior is important.