Questions: 1. What is the estimated monthly contribution margin per cable subscr

Question

Questions:

1. What is the estimated monthly contribution margin per cable subscriber for CableVision in 2016?

2. What is CableVision's estimated monthly operating income in 2016 if 20,000 residents subscribe?

3. How many monthly subscribers would be required for CableVision to break even in 2016?

4. How many monthly subscribers would be required for CableVision to earn $21,000 per month in 2016?

5. Assuming a tax rate of 34%, what must revenue be in order for CableVision to earn $21,000 per month in 2016?

6. 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)?

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 ffer Miraa residents It will offer Mirada residents a basic set of 25 cable television stations at a rate of $33.49 per month. . CableVision will pay the city $85,000 per month plus $2.50 per cable subscriber per month to maintain the physical facilities . CableVision will actually pay another company an annual fixed fee of $730,000 plus $8.75 per cable subscriber per month to broadcast the 25 channels Cablevision estimates that operating costs for billing, program news mailings, etc. will be $125,000 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.] DOLLAR.

Explanation / Answer

1. Statement showing contribution per subscriber

2. Monthly operating income = 19.23 x 20000 - 85000 - 125000 - 730000/12

= 113767

3. Fixed cost per month = 85000 + 125000 + 60833

= 270833

Breakeven point = 270833/19.23 = 14084

Thus monthly subscribers will be 14084

4. Monthly subscribers to earn 21000 = (270833+21000)/19.23

= 15176

Revenue per subscriber 33.49 Less: Variable cost Physical facilities 2.50 Broad casting fee 8.75 Operating cost 3.01 Contribution per subscriber per month 19.23

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