This problem contains three parts. In Part A, you are asked to determine the par

ID: 2421684 • Letter: T

Question

This problem contains three parts. In Part A, you are asked to determine the parameters of the profit function - the contribution margin and the fixed costs. You should not move on to Parts B and C until you get Part A correct, or until you use up all of your tries. The correct profit function parameters will be given to you after you have completed Part A - you should use these parameters in Parts B and C.

The problem is worth 20 points. Parts A and B are worth eight points each; Part C is worth four points. To get the eight points for Part A, you must answer both questions correctly; to get the eight points for Part B, you must all four questions correctly. You get six tries on Part A, eight on Part B, and four on Part C.
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CableVision has been approached by the City of Mirada to run its cable operations in 2016. After negotiating with key parties, CableVision has made the following agreements:

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?

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

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)?

Tries 0/6

Explanation / Answer

Variable cost = ($3 + $7.50 + 33.99@9%) = $13.5591

hence contribution = $33.99 - $13.55991 = $20.43

b)Fixed cost per month

= $1,300,000/12 + $60,000+110,000 = $278,333

Part B ) Contribtuion = 17,000* 20.43 = $347,310

less :Fixed cost =(278,333)

Profit = $68,977

2)BEP = fixed cost/ contribution per unit

= 278,333/20.43

= 13,624 subscribers

3)To earn 21,000

(278,333 + 21,000) / 20.43 = $14,652

4) x * .35x = $21,000

x = $32,307

(278,333+32,307)/20.43

= 15,205 subscribers

Part C )

22,000 * 20.43 = $449,460

449,460 = 21,000 + x

X = 428,460