Break-Even Analysis Sprint Nextel is one of the largest digital wireless service

Question

Break-Even Analysis Sprint Nextel is one of the largest digital wireless service providers in the United states. In a recent year, it had approximately 33.3 million direct subscribers (accounts) that generated revenue of dollar32,563 million. Costs and expenses for the year were as follows (in millions):Cost os revenue dollar17, 492 Selling, general, and administrative expenses 9,418 Depreciation 5,074 Assume that 75% Of the cost of revenue and 25% of Selling, general, and administrative expenses are variable to the number Of direct subscribers (accounts). In part (a) a (b), round all interim calculations and final answers to one decimal place. What is Sprint Nextel's break even number or accounts, using the data and assumptions above? million accounts How much revenue per account would be sufficient for Sprint Nextel to break even if the number of accounts remained constant? million per account

Explanation / Answer

Variable Cost Fixed Cost Total In $ Million In $ Million In $ Million Cost of revenue               13,119.00                        4,373.00            17,492.00 Selling,General,admin exp.                 2,354.50                        7,063.50              9,418.00 Depreciation                              -                        5,074.00              5,074.00 Total Cost               15,473.50                     16,510.50            31,984.00 Contribution Margin in $ = Revenue - Variable cost = $32563 - $15473.50 = $17089.50 Contribution margin per account = $17089.50 / 33.30 = $513.20 per account Answer a Break even number of account = Fixed cost / Contribution margin per account Break even number of account = 16510.50 / 513.20 = 32.2 million number of accounts Answer b Revenue per account = $32563 million / 33.30 million = $977.87 per account Break even point in dollars = 32.20 million * 977.87 = $31487.41 million Revenue per account required to breakeven if the number of accounts remain constant = $31487.41 million / 33.30 million = $945.6 per account

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