Harry is starting a new business of selling unicorn dust and trying to decide what price he should charge for a bag of the same. His fixed cost includes monthly expense of $500 and variable cost per bag of unicorn dust is $1.95.

Scenario

Labour Cost

Material Cost

High labour cost/high material cost

$80

$140

Medium labour cost/medium material cost

$60

$110

Low labour cost/low material cost

$40

$90

3

a. Help Harry to evaluate his profit at various price levels ($3 to $4.25) and various quantities of sales (ranging from 100 to 700 bags per month).

b. How does profit vary if fixed costs vary from $200 to $600?