Zap, Inc., manufactures an organic insecticide that is marketed and sold via television infomercials. Each ZAP kit

Question:

Zap, Inc., manufactures an organic insecticide that is marketed and sold via television infomercials. Each “ZAP” kit sells for $22, which includes a base price of $20 per “ZAP” kit plus $2 in shipping and handling fees. Zap’s contribution margin ratio is 60%. In addition, Zap expects to break even if it sells 17,500 “ZAP” kits per month.

Required:

a. What is the unit variable cost of a “ZAP” kit?

b. What are Zap’s monthly fixed costs?

c. Suppose Zap introduces an offer for “free” shipping and handling. How many additional “ZAP” kits must be sold each month to break even?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...