Reference no: EM132524014

On your day off you are talking with a friend who mentions that she is looking into starting up a new business venture and wants your input. The friend is thinking about starting a small business she read about on the internet. The advertisement indicated that you would "be your own boss", "only need to sell 10 units to breakeven" & "low fixed costs". She says that it seems like an easy side gig but admits that she is unsure what breakeven point is & or even what a fixed or non-fixed variable cost is?

You indicate that you will do some research and you discover the following cost structure:

• Inventory/month: $300
• Royalty/unit - $10
• Monthly license fee: $25
• Advertising/unit - $12

• Further information indicates that the owner of the rights insists that you charge $30/unit, with no ability to modify.

Required:

Question 1: A memo to your friend to explain breakeven point & the difference between fixed & variable costs.

Question 2: A breakeven point calculation.

Question 3: To further help her, suppose you could charge whatever amount you like, what would you have to charge per unit to breakeven at 10 units sold on a monthly basis provide a calculation?