EX 19-16 Break-even analysis for a service company Sprint Nextel is one of the l
ID: 2465796 • Letter: E
Question
EX 19-16 Break-even analysis for a service company Sprint Nextel is one of the largest digital wireless service providers in the United States to recent year, it had approximately 32.5 million direct subscribers (accounts) that revenue of $35,345 million. Costs and expenses for the year were as follows (in millions OBJ.3 generated Cost of revenue Selling, general, and administrative expenses Depreciation $20,841 9,765 2,239 Assume that 70% of the cost of revenue and 30% of the selling, general, and administra- tive expenses are variable to the number of direct subscribers (accounts). a. What is Sprint Nextel's break-even number of accounts, using the data and assump tions given? Round units (accounts) and per-account amounts to one decimal place b. How much revenue per account would be sufficient for Sprint Nextel to break even if the number of accounts remained constant?Explanation / Answer
Number of units 32.5 Total revenue 35345 Revenue per unit 1087.5 Variable Fixed Cost of revenue 20841 14588.7 6252.3 selling & general and administrative expenses 9765 2929.5 6835.5 Depriciation 2239 2239 Total 32845 17518.2 15326.8 Variable cost per unit ( 17518.2 / 32.5) 539.0 Contribution per unit = Revenue per unit - variable cost per unit = 1087.5 - 539 = 548.5 27.94312 a) Break even point ( units) = Fixed expenses / Contribution per unit = 15326.8 / 548.5 = 27.9 million accounts b) Break even point ( in value) = 27.9 * 1087.5 = 30341.25 million Hence, 30341.25 million is required in total revenue to break even if number of units are fixed 32.5 Revenue per account required to break even = 30341.25 / 32.5 = 933.6
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