Zinc Energy Resources Co., a new division of a major battery manufacturing company, recently patented a new battery that uses zinc-air technology. Traditional lead-acid batteries typically sold to retailers for $35 each and had set costs, such as the battery housing (the casing that holds the energy-producing elements), that equalled $6 per unit. Their additional per unit costs included $4 in materials and $4 in direct labour costs. The unit costs for the zinc-air battery are slightly higher: The battery housing is $8, materials are $6, and direct labour is $6 per unit. The contribution per unit will be similar to that of the traditional lead-acid model. Retooling the existing factory facilities to manufacture the zinc-air batteries amounts to an additional $5 million in equipment costs (the equipment is expected to last 10 years). Annual fixed costs include sales, marketing, and advertising expenses of $1 million; general and administrative expenses of $1 million; and other fixed costs totalling $2 million. The prevailing interest rate is 5.0%. Ryan Martin, the marketing manager, must first analyze his costs before beginning to develop a pricing strategy for this innovative product. By answering the following questions, Ryan believes he will be armed with the necessary cost information so he can evaluate various pricing strategies.

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 to match the price of current batteries, $35, what would the break-even point be?

d. Draw a break-even graph that illustrates the nature of the fixed costs, variable costs, total costs, revenue (at the current market price of $35), and break-even point. What can you conclude from this graph?