Sprint Nextel is one of the largest digital wireless service providers in the US

Question

Sprint Nextel is one of the largest digital wireless service providers in the US. In a recent year, it had approximately 41.5 million direct subscribers (accounts) that generated revenue of $40,146 million. Costs and expenses for the year were as follows (in millions):

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 subscribers (accounts).

a. What is Sprint Nextel's break-even number of accounts, using the data and assumptions abouve?
b. How much revenue per account would be sufficient for Sprint to break even if the number of accounts remained constant?

Explanation / Answer

Cost of revenue: $6,091 selling, general, administrative expense $4,411 depreciation $2,557

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