In: Accounting
Break-even analysis for a service company
Sprint Nextel is one of the largest digital wireless service
providers in the United States. In a recent year, it had
approximately 32.5 million direct subscribers (accounts) that
generated revenue of $35,345 million. Costs and expenses for the
year were as follows (in millions):
Cost of revenue | $20,841 |
Selling, general, and administrative expenses | 9,765 |
Depreciation | 2,239 |
Assume that 70% of the cost of revenue and 30% of the selling, general, and administrative expenses are variable to the number of direct subscribers (accounts). In part (a) and (b), round all interim calculations and final answers to one decimal place.
a. What is Sprint Nextel's break-even number of
accounts, using the data and assumptions given?
million accounts
b. How much revenue per account would be
sufficient for Sprint Nextel to break even if the number of
accounts remained constant?
$ million per account