Approximately 41.5 million direct subscribers (accounts) that generated revenue

Question

Approximately 41.5 million direct subscribers (accounts) that generated revenue of $40,146 million. Costs and expenses for the year were as follows (in millons)

Cost of revenue = 17,191

Selling, general, and administrative expenses = 12,673

Depreciation = 5,711

Assume that 75% of the cost of revenue and 35% of the selling, general, and administrative expenses are variable to the number of direct subsribers (accounts)

I cannot figure out the blanks I have on the spreadsheet

Explanation / Answer

Hi,

Please find the answer as follows:

Fixed Cost = 17191*25% + 12673*65% + 5711 = 18246.2

Revenue Per Account = Total Revenue/Total Number of Subscribers = 40146/41.5 = 967.3735 or 967.37

Variable Cost Per Account = Total Variable Cost/Total Number of Subscribers = (17191*75% + 12673*35%)/41.5 = 417.56

Break Even (Accounts) = Fixed Cost/(Revenue Per Account - Variable Cost Per Account) = 18246.2/(967.37 - 417.56) = 33.186 or 33.19 Accounts.

Thanks

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