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 $29,900 million. Costs and expenses for the year were as follows: Cost of revenue $12,600 Selling, general, and administrative expenses 9,900 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

1
Revenue Per Account	29900/100	299
Variable Cost of Revenue Costs	12,600*70%	8820
Fixed Cost of Revenue Costs	12600-8820	3780
Variable Selling, general, and administrative expenses	9,900*30%	2970
Fixed Selling, general, and administrative expenses	9900-2970	6930
Total Variable Costs	8820+2970	11790
Total Fixed Costs	3780+6930	10710
Contribution Margin	(29900-11790)/29900	0.61
break-even number of accounts
(0.61*$299)*X - $10710 = 0	24347.45763
(0.61*$299)*X - $10710 = 0
182.39
59	Million Accounts
b
100*X*0.61 - $10710 = 0
x = 176	Million per account

X = the breakeven point