Question

In: Finance

ANZflix, a media-services provider, charges subscribers $13.49 per month. To attract more customers, the Management and...

ANZflix, a media-services provider, charges subscribers $13.49 per month. To attract more customers, the Management and Product Planning team spents an estimated cost at $52,000 to produce and deploy products across all user interfaces. Also, the Software Engineering team maintains all systems and infrastructure to ensure that members can continue to sign up and watch ANZflix. This maintainance costs ANZflix $56,000 per month. ANZflix uses a server in Taiwan to deliver streaming videos to its subscribers and the facility runs at a cost of $135 per month. Another cost incurred by ANZflix includes $0.02 per GB (GigaByte) of bandwidth to deliver content. In addition, the external studios making the content are paid $0.15 every time for a subscriber watches one program. A typical ANZflix subscriber will watch 30 programs, streaming 65GB of film and TV shows per month. Each subscriber will also cost ANZflix $1.14 per month to maintain their membership. (a) Using the above information, calculate: (i) The break-even number of subscribers per month for ANZflix. (ii) The monthly revenue at break-even. Show all working out including the modelling and solution steps. (b) Provide an EXCEL graph detailing the necessary information to show the break-even points contained in your responses to parts (a) of this question. The graph must illustrate the B.E.P. and the region corresponding to profits and the region corresponding to losses. Your student ID must be included as a part of the title of the graph. (c) How many subscribers are required to obtain a profit of $120,000 per month? What is the monthly revenue for this number of subscribers? Show all working out including the modelling and solution steps. (d) The marketing department is forecasting that if the subscription price is reduced by 10%, Anzflix will attract 35% more subscribers than the current number when monthly profit is $100,000. However, as they don’t have a degree in analysing data they need you to make sure they aren’t making bad recommendations. Calculate the new break-even number of subscribers, the new revenue and thus the new profit for these changes. Show all working out including the modelling and solution steps. (e) What effect does the change in part (d) have on the contribution margin? Explain the effect of this change on the expected break-even number in part (a). Support your justification with calculation of both contribution margins.

Expert Solution

a]

i]

break-even number of subscribers per month = monthly fixed cost / contribution per subscriber per month

Managment/Product planning cost is a one-time marketing product development cost, and not a recurring fixed cost. Hence, it is not included in fixed costs

monthly fixed cost = (Software Engineering costs + Server cost)

monthly fixed cost = $56,000 + $135 = $56,135

Contribution per subscriber per month = Revenue per subscriber per month - variable cost per subscriber per month

variable cost per subscriber per month = bandwidth cost + royalty cost + maintenance cost

bandwidth cost = number of GB * cost per GB = 65 * $0.02 = $1.30

royalty cost = number of programs * cost per program = 30 * $0.15 = $4.50

variable cost per subscriber per month = $1.30 + $4.50 + $1.14 = $6.94

Contribution per subscriber per month = $13.49 - $6.94 = $6.55

break-even number of subscribers per month = $56,135 / $6.55 = 8570 subscribers

ii]

monthly revenue at break-even = subscribers * revenue = 8570 * $13.49 = $115,609

b]

The portion of the line chart which is below the X-axis represents losses

The portion of the line chart which is above the X-axis represents profits

The point where the line chart intersects the X-axis is the BEP

c]

Subscribers required = (Desired profit + monthly fixed cost) / Contribution per subscriber per month

Subscribers required = ($120,000 + $56,135) / $6.55 = 26,891 subscribers

jeff jeffy answered 7 months ago

How to use Social Media to Attract and Retain Customers in a sales organization. It is...

How to use Social Media to Attract and Retain Customers in a sales organization. It is not really important to know exactly what type of sales organization, but if you need that background, chose an organization that sells a product or service by means of a commission driven sales force.

Sprint charges its current customers an average of $55 per month. It costs Sprint $4.50 per...

Sprint charges its current customers an average of $55 per month. It costs Sprint $4.50 per month to serve these customers. It also spends $3 per customer per month to keep these customers loyal. Over the last few years Sprint has been able to retain 80% of its customers. Assume a discount rate of 5% annually. Calculate Sprint’s customer lifetime value of its current customers. [2] Sprint is willing to spend $320M in advertising to 10 million viewers, and $375M...

Westside Energy charges its electric customers a base rate of $4.00 per month, plus 12¢ per...

Westside Energy charges its electric customers a base rate of $4.00 per month, plus 12¢ per kilowatt-hour (kWh) for the first 300 kWh used and 3¢ per kWh for all usage over 300 kWh. Suppose a customer uses x kWh of electricity in one month. (a) Express the monthly cost E as a piecewise defined function of x. (Assume E is measured in dollars.) E(x) = A. if 0 ≤ x ≤ 300 B. if 300 < x C. (b) Graph the...

The Dash Cell Phone Company charges customers a basic rate of $5 per month to send...

The Dash Cell Phone Company charges customers a basic rate of $5 per month to send text messages. Additional rates are as follows: The first 100 messages per month, regardless of message length, are included in the basic bill. An additional three cents are charged for each text message after the 100th message, up to and including 300 messages. An additional two cents are charged for each text message after the 300th message. Federal, state, and local taxes add a...

A company provides meal services to 5000 customers a month, at a cost $17.50 per meal....

A company provides meal services to 5000 customers a month, at a cost $17.50 per meal. The company has a sale for a month reducing the cost per meal by 10% and receives an additional 1000 orders that month. What is the Elasticity Coefficient for the meal service? Question 5 options: 2 .2 2.1 1.2

A company provides meal services to 5000 customers a month, at acost $17.50 per meal....

A company provides meal services to 5000 customers a month, at a cost $17.50 per meal. The company has supply issues and has to raise the cost per meal to $20.00. As a result, sales drop 5%. Based on this, the meal service is elastic.T)F)

In today's world advertisers rely on more social media and electronic media to reach their customers....

In today's world advertisers rely on more social media and electronic media to reach their customers. This is a quick and cheaper way to advertise - but is it invasive? Do you think the abundance of emails, phones calls, and text messages along with threads on social media are just today's version of snail mail and land line phone calls? Something we have to get used to - deal with? What are your thoughts?

A TV satellite provider charges $42 a month for its basic service package. Its variable costs...

A TV satellite provider charges $42 a month for its basic service package. Its variable costs are $4 a month per account. The company spends $24 a year per account on marketing with an attrition rate of 1% a month. Assuming an annual discount rate of 5%, calculate the maximum amount that this company could spend to acquire a new customer and still provide a positive expected contribution. Please show the work as I’m trying to learn the concept

A TV provider has 300,000 customers and is considering unlimited movie streaming services. A random sample...

A TV provider has 300,000 customers and is considering unlimited movie streaming services. A random sample of 256 customers is asked what they would be willing to pay per month for the unlimited movie streaming services. the same average of the responses is $15 and the standard deviation is $16. 1. Consider all 300,000 customers. What is the average price that they would be willing to pay for unlimited movie streaming? What is the associated standard error (in $)? 2....

A friend or yours is considering two cell phone service providers. Provider A charges $100 per...

A friend of yours is considering two cell phone service providers. Provider A charges $100 per month for the service regardless of the number of phone calls made. Provider B does not have a fixed service ree but instead charges $1 per minute for calls. Your friend's monthly demand for minutes or calling is given by the equation p-120-30P, where P is the price of a minute. With Provider A, the cost of an extra minute is 5 _______ .with...