Rotelco is one of the largest digital wireless service providers in the United S
ID: 2363663 • Letter: R
Question
Rotelco is one of the largest digital wireless service providers in the United States. In a recent year, it had approximately 100 direct subscribers (accounts) that generated revenue of $32,700. Costs and expenses for the year were as follows: Cost of revenue $13,100 Selling, general, and administrative expenses 8,800 Depreciation 3,600 Assume that 75% of the cost of revenue and 20% 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. 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 dollarExplanation / Answer
Rotelco is one of the largest digital wireless service providers in the United States. In a recent year, it had approximately 100 direct subscribers (accounts) that generated revenue of $31,300. Costs and expenses for the year were as follows: Cost of revenue $15,300 Selling, general, and administrative expenses 8,500 Depreciation 3,400 Assume that 70% of the cost of revenue and 25% 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. Average Revenue Per Account = $31,300 / 100 = $313 Variable Cost of Revenue Costs = $15,300 X 70% = $10,710 Fixed Cost of Revenue Costs = $15,300 - 410,70 = $4,590 Variable SG&A Costs = $8,500 X 25% = $2,125 Fixed SG&A Costs = $8,500 - $2,125 = $6,375 Total Variable Costs = $10,710 + $2,125 = $12,835 Total Fixed Costs = $3,400 + $4,590 + $6,375 = $14,365 Contribution Margin = ($31,300 - $12,835) / $31,300 = 0.59 The formula to determine Breakeven in # of accounts is (where X = the breakeven point) (0.59*$313)*X - $14,365 = 0, which reduces to: 184.67X = $14,365, which solves for X as: X = 77.79, which rounds to: 78 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. 100*X*0.59 - $14,365 = 0, now solve for X 59X = $14,365 X = 243.47, which rounds to: $243 per account
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