It will offer Mirada residents a basic set of 25 cable television stations at a

Question

It will offer Mirada residents a basic set of 25 cable television stations at a rate of $33.99 per month.

CableVision will pay the city $1,300,000 per year plus $3.00 per cable subscriber per month to maintain the physical facilities.

CableVision will actually pay another company a monthly fixed fee of $60,000 plus $7.50 per cable subscriber per month to broadcast the 25 channels.

CableVision estimates that operating costs for billing, program news mailings, etc. will be $110,000 per month plus 9% of monthly revenue.

CableVision has several questions about its monthly revenues, costs, and profits in 2016.

REQUIRED [ROUND YOUR ANSWER TO PART A, QUESTION 1 TO THE NEAREST CENT; ROUND ALL OTHER ANSWERS TO THE NEAREST UNIT OR NEAREST DOLLAR.]

Part A (6 tries; 8 points)
1. What is the estimated monthly contribution margin per cable subscriber for CableVision in 2016?   20.4300  

2. What are the estimated total monthly fixed costs for CableVision in 2016?   278333  

Your answers are correct, but just to make sure that there are no rounding issues, use $20.43 for the estimated contribution margin per subscriber and $278,333 for the estimated monthly fixed costs in Parts B and C.

Part B (8 tries; 8 points)
1. What is CableVision's estimated monthly operating income in 2016 if 17,000 residents subscribe?   

2. How many monthly subscribers would be required for CableVision to break even in 2016?   

3. How many monthly subscribers would be required for CableVision to earn $21,000 per month in 2016?   

4. Assuming a tax rate of 35%, what must revenue be in order for CableVision to earn $21,000 per month in 2016?   

Part C (4 tries; 4 points)
Some of CableVision's managers are uncertain about their estimate of monthly fixed operating costs. Assuming that 22,000 residents subscribe, how large can monthly fixed operating costs be for CableVision to still earn $21,000 per month in 2016 (ignore taxes)?   

Explanation / Answer

A Cable Vision Contribution margin statement Details Variable Amt/subscriber per month Total Amt per month Subscribers nos Revenue                      33.99                          -   Variable payment to City                          3.00                          -   Variable pay to another company                        7.50                          -   Operating cost @9% of sales revenue                        3.06                          -   Total Variable cost                      13.56                          -   contribution margin $                 20.43                          -   Fixed costs per month Fixed payment to city/month              108,333 Fixed payment to another company/month=                 60,000 Fixed Operating Cost per month              110,000 Total fixed cost per month $    278,333.33 B If 17000 residents subscribe, Details Variable Amt/subscriber per month Total Amt per month Subscribers                   17,000 nos Revenue                      33.99              577,830 Variable payment to City                          3.00                 51,000 Variable pay to another company                        7.50              127,500 Operating cost @9% of sales revenue                        3.06                 52,005 Total Variable cost                      13.56              230,505 contribution margin $                 20.43              347,325 Fixed costs per month Fixed payment to city/month              108,333 Fixed payment to another company/month=                 60,000 Fixed Operating Cost per month              110,000 Total fixed cost per month $    278,333.33           1 Net Operating Income per month $      68,991.97           2 Total Fixed cost             278,333.33 Contrinbution Margin per subscriber=                      20.43 Break even Subscriber nos=278333/20.43=                   13,623 nos           3 Required Earning                   21,000 Total Fixed cost             278,333.33 Tota Required contribution           299,333.33 Contrinbution Margin per subscriber=                      20.43 Required subscriber nos=299333/20.43                   14,651 nos           4 Tax rate   35% Post tac earning required                      2,100 Required Pretax Earning                3,230.77 Total Fixed cost             278,333.33 Tota Required contribution           281,564.10 Contrinbution Margin per subscriber=                      20.43 Required subscriber nos=281564/20.43                   13,782 nos C Contribution margin statement Details Variable Amt/subscriber per month Total Amt per month Subscribers                   22,000 nos Revenue                      33.99              747,780 Variable payment to City                          3.00                 66,000 Variable pay to another company                        7.50              165,000 Operating cost @9% of sales revenue                        3.06                 67,300 Total Variable cost                      13.56              298,300 Total contribution margin                      20.43              449,480 Required earning                   21,000 Maximum fixed cost /month              428,480 Less Fixed payment to cable city/month              108,333 Less Fixed payment to another company/month=                 60,000 Maximum Fixed operating cost /month $    260,146.47

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