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

Question

Business

Tyrone

20 June, 13:16

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

+1

Answers (1)

Know the Answer?

Jason Brady · Answer 1

Variable cost = 20,841*70%+9,765*30% = 17,518.20

Fixed cost = 20,841+9,765+2,239 - 17,518.20 = 15,326.8

Contribution margin per unit = (Revenue - Variable cost) / subscribers = (35,345-17,518.20) / 32.5 = 548.5

a) Break even unit = Fixed cost/Contribution margin = 15,326.8/548.5 = 27.9 Million

b) Revenue per account = (Total variable cost+Total fixed cost) / subscribers = (17,518.20+15,326.8) / 32.5 = $1010.61