Sprint Nextel is one the largest digital wireless service providers In the Unite

Question

Sprint Nextel is one the largest digital wireless service providers In the United States In a recent year, it had approximately 36.7 million direct subscribers (accounts) that generated revenue of $35.635 million Costs and expenses for the year were as follows (in millions) Coit of revenue $16,746 Selling, general. and administrative expenses 11.355 Depreciation 5,943 Assume that 80% of the cost of revenue and 30% of the selling, general, and .administrative , expenses arc variable to the number of direct subscribers (accounts), what is sprint Nextel's break-even number of accounts, using the data and assumptions above? Round units (accounts) to one decimal place How much revenue per account would be- sufficient for Sprint Nextel to break even it the number of accounts remained constant?

Explanation / Answer

No of Subs = 36.7M Total Rev = $35,635M So Rev per sub = $35,635M/36.7M = $971 per sub ....(x) COst of Rev = $16,746 ----> 80% Var S&A Exp = $11,355 ----> 30% Var Dep = $5,953 SO We can write the COntribution Margin Stt of Sprint as below :- Total Rev $35,635M Less : Var Cost of Rev=80%*16,746= $13,397M Var S&A Exp = 30%*11,355 = $3,407M ------------------------------------------------- Total Cont = $18,832M SO COnt per sub = Total Cont/No of sub = 18832/36.7 = $513 ..................(A) Total Var cost = $13,397M + $3,407M = $16,803M So Var cost per Sub = $16,803M/36.7M = $458 per sub ...........(y) Fixed costs :- Fixed Cost of Rev=20%*16,746= $3,349M Fixed S&A Exp = 70%*11,355 = $7,949M Dep exp =$5,953M ------------------------------------ Total Fixed costs = $17,251M .................(B) (a) BEP = Total Fixed cost/COnt per sub = B/A = 17215M/513 =33.6M Subs (b) Rev per sub at BEP = COnt Per sub + Var cost per sub = A+y = $513+$486 = $971

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.