Marketing 3rd Edition by Dhruv Grewal,Michael Levy

Exercise 3

Zinc Energy Resources Co., a new division of a major battery manufacturing company, recently patented a new battery that uses zinc-air technology. The unit costs for the zinc-air battery are: The battery housing is $8, materials are $6, and direct labor is $6 per unit. Retooling the existing factory facilities to manufacture the zinc-air batteries amounts to an additional $1 million in equipment costs. Annual fixed costs include sales, marketing, and advertising expenses of $1 million; general and administrative expenses of $1 million; and other fixed costs totaling $2 million. Please answer the following questions.
a. What is the total per-unit variable cost associated with the new battery?
b. What are the total fixed costs for the new battery?
c. If the price for the new battery was set at $35, what would the break-even point be?