Question

CableVision has been approached by the City of Mirada to run its cable operations in 2019. After negotiating with key parties, CableVision has made the following agreements:

• It will offer Mirada residents a basic set of 25 cable television stations at a rate of $29.99 per month.
• It will pay the city $1,300,000 per year plus $3.25 per cable subscriber per month to maintain the physical facilities.
• It will actually pay another company a monthly fixed fee of $70,000 plus $8.50 per cable subscriber per month to broadcast the 25 channels.

CableVision estimates that operating costs for billing, program news mailings, etc. will be $130,000 per month plus 9% of monthly revenue.

CableVision has several questions about its monthly revenues, costs, and profits in 2019.

Some of CableVision's managers are uncertain about their estimate of monthly fixed operating costs. Assuming that 21,000 residents subscribe, how large can monthly fixed operating costs be for CableVision to still earn $27,000 per month in 2019 (ignore taxes)?

Answer 1

Dear student, here we cannot rounding of any amount because there is no mention for rounding (Hint: For Variable nature Operating costs for billing, program news mailings.)

Selling price per cable subscriber per month		$          29.9900
Less: Variable cost per cable subscriber per month
Maintain the physical facilities	3.2500
Broadcast fees	8.5000
Operating costs for billing, program news mailings (29.99*9%)	2.6991
Total Variable cost per cable subscriber per month		$          14.4491
Contribution margin per cable subscriber per month		$          15.5409
Multiply: Numbers of residents subscribe		21,000
Total monthly Contribution margin		$    326,358.90
Less: Desired profit		$       27,000.00
Monthly fixed operating costs		$    299,358.90
Monthly fixed operating costs be for CableVision to still earn $27,000 per month in 2019		$    299,358.90