The America Online division of Time Warner has fueled its growthby using aggressive promotion strategies. One of thesestrategies is to send compact disk software to potential customers,offering free AOL service for a period of time. Assume thatduring a given promotional campaign, AOL mailed 3,200,000 disks topotential customers, offering three months' freeservice. In addition, assume the following information:
Cost per disk (includingmailing) 1.50
Number of months an average new customer stays
With the service (including the three freemonths) 30 months
Revenue per month per customeraccount 10.00
Variable cost per month per customeraccount 1.00
Determine the number of new customer accounts needed tobreak even on the cost of the promotional campaign. In formingyour answer, (1) treat the cost of mailing the disk as a fixedcost, and (2) treat the revenue less variable cost per account forthe service period as the unit contribution margin.