If a big knife is all you have, that will work. A long serrated knife works best for me. If you set the cake back in the pan you baked it in (or do this before you take the cake out of the pan) you can use the top edge/rim of the pan as a guide to level the cake. Unflavored dental floss or fishing line pulled across the top edge/rim of the pan will also work.
You can do either. Fondant right from the mold will take the shape of the cake better-if, for instance, it's going on the side of a round cake.If left to dry for a while, they will be more sturdy and easier to work with.
I use Duncan Hines, and they did the same thing. The box went from 18.25 oz. to 16.5 oz. I just bought an extra mix and weighed out the difference. The 1.75 oz difference made about 1/3 cup. Now I just keep an extra opened mix in a plastic container and dip out 1/3 cup to add to the box I'm mixing up.
I always overfill my pans so I am sure to have the height needed. However if by some fluke I do not get the height I need I use the Wilton plastic pillars that can be cut with scissors; they fit into the plates very well. (The SPS pillars are a little hard to cut.)Leah_s has a sticky here on CC that gives great info on how to use SPS.