Question

Rotelco is one of the largest digital wireless service providers in the United States. In a recent year, it had approximately 100 million direct subscribers (accounts) that generated revenue of $30,200 million. Costs and expenses for the year were as follows:

Cost of revenue	$14,500
Selling, general, and administrative expenses	8,800
Depreciation	3,300

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).

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

Answer 1

Req A;
Total Variable Cost:
Cost of revenue (14500*70%)					10150
Sselling gen. and admin expense (8800*30%)					2640
Total variable cost:					12790
Number of accounts					100
Vvariable cost per account					127.9
Total sales revenue					30200
Sales revenue per account					302
Contribution margon per account (302-127.90)					174.1
Total Fixed Cost:
Cost of Goods sold 14500*30%)				4350
Selling admin (8800*70%)				6160
Depreciation				3300
Total Fixed Cost:				13810
Break even in terms of number of accounts : Fixed cost / Contribution margin per account
				13810 / 174.10 = 79.32 millions accounts
Req Bb:
Fixed cost: $13810 million
Number of account : 100 million
Contribution margin required per account (to be at break even): $ 138.10 per acount
Variable cocst per account: 127.90
Therefore, Revenue per account: 127.90+ 138.10 = $266