Break-even analysis for a service company Sprint Corporation (S) is one of the largest digital wireless service providers in the United States. In a recent year, it had approximately 60 million direct subscribers (accounts) that generated revenue of $33,347 million. Costs and expenses for the year were as follows (in millions):
Cost of revenue $14,958
Selling, general, and administrative expenses 7,994
Depreciation and amortization 8,150

Assume that 70% of the cost revenue and 30% of the selling, general, and administratiev expenses are variable to the number of direct subscriber (accounts).
A. What is Sprint Corporations's break-even number of accounts, using the data and assumption given?
B. How much revenue per account would be sufficient for Sprint Corporation to break even, if the number of accounts remained constant?

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jepessoa jepessoa · Answer 1 · 2020-04-26T06:32:05+02:00

Answer:

A. What is Sprint Corporations's break-even number of accounts, using the data and assumption given?

B. How much revenue per account would be sufficient for Sprint Corporation to break even, if the number of accounts remained constant?

Explanation:

break even number of accounts = (total fixed costs / contribution margin) x total number of accounts

contribution margin = total revenue - variable costs = $33,347 - ($14,958 x 70%) - ($7,994 x 30%) = $33,347 - $10,470.6 - $2,398.2 = $20,478.2 millions
total fixed costs = ($14,958 x 30%) + ($7,994 x 70%) + $8,150 = $4,487.4 + $5,595.8 + $8,150 = $18,233.2 millions

break even number of accounts = ($18,233.2 millions / $20,478.2 millions) x 60 million subscribers = 53.42 million

revenue per account = (53.42 million / 60 million) x ($33,347 / 60) = $494.83 per account