BabyGap.com is considering how to increase demand for its line of infant clothes. One proposal is to buy a mailing list with 100,000 names of recent parents who have household incomes greater than $40,000 and send them each a coupon for $5 for purchase at the web site. Gap has to pay $0.50 for each name on the list. It will also incur a mailing cost of $0.50 for every mail it sends out. Gap expects the average customer responding to such a promotion will buy clothes worth $50.00 at the web site (including shipping and handling charges). The average cost for Gap for the clothes will be $20.00. The industry average for purchases arising from such targeted mailings is roughly 6%.

Compute the contribution margin. ($)

Compute the fixed cost for Gap if it used this strategy. ($)

Compute the breakeven quantity.

Compute Expected Sales based on Industry Average

If Gap wants to make at least $100,000 from this campaign, Compute Sales in Units needed.

Answer rating: 100% (QA)

Cost of purchasing Mailing list 100000 X 05 50000 Mailing cost 100000 ... View the full answer