Question

Break-Even Analysis

Rotelco is one of the largest digital wireless service providers in the United States. In a recent year, it had approximately 100 direct subscribers (accounts) that generated revenue of $52,900. Costs and expenses for the year were as follows:

Cost of revenue	$23,300
Selling, general, and administrative expenses	17,500
Depreciation	5,800

Assume that 60% of the cost of revenue and 25% of the selling, general, and administrative expenses are variable to the number of direct subscribers (accounts).

a. What is Rotelco's break-even number of accounts, using the data and assumptions above? Round to the nearest whole number.
_______ accounts

b. How much revenue per account would be sufficient for Rotelco to break even if the number of accounts remained constant? Round to the nearest dollar.
_______$ per account

I HAVE TRIED 64 AND 65 AS THE ANSWER TO THE FIRST PART OF THE QUESTION. I HAVE ALSO ASKED OTHER EXPERTS BUT NOTHING IS COMING UP RIGHT. PLEASE HELP

Answer 1

Answer a.

Variable Costs = 60% * Cost of Revenue + 25% * Selling, General and Administrative Expenses
Variable Costs = 60% * $23,300 + 25% * $17,500
Variable Costs = $18,355

Variable Costs per account = Variable Costs / Number of accounts
Variable Costs per account = $18,355 / 100
Variable Costs per account = $183.55

Service Revenue per account = Service Revenue / Number of accounts
Service Revenue per account = $52,900 / 100
Service Revenue per account = $529

Fixed Costs = 40% * Cost of Revenue + 75% * Selling, General and Administrative Expenses + Depreciation
Fixed Costs = 40% * $23,300 + 75% * $17,500 + $5,800
Fixed Costs = $28,245

Contribution Margin per account = Service Revenue per account - Variable Costs per account
Contribution Margin per account = $529.00 - $183.55
Contribution Margin per account = $345.45

Breakeven number of accounts = Fixed Costs / Contribution Margin per account
Breakeven number of accounts = $28,245 / $345.45
Breakeven number of accounts = 82

Answer b.

Breakeven number of accounts = 100
Fixed Costs = $28,245
Variable Costs per account = $183.55

Breakeven number of accounts = Fixed Costs / Contribution Margin per account
100 = $28,245 / Contribution Margin per account
Contribution Margin per account = $282.45

Contribution Margin per account = Service Revenue per account - Variable Costs per account
$282.45 = Service Revenue per account - $183.55
Service Revenue per account = $466.00