Rotelco is one of the largest digital wireless service providers in the United S

Question

Rotelco is one of the largest digital wireless service providers in the United States. In a recent year, it had approximately 100 direct subscribers (accounts) that generated revenue of $58,200. Costs and expenses for the year were as follows: Cost of revenue $24,400 Selling, general, and administrative expenses 16,900 Depreciation 6,400 Assume that 75% of the cost of revenue and 25% of the selling, general, and administrative expenses are variable to the number of direct subscribers (accounts).

a. What is Rotelco's break-even number of accounts, using the data and assumptions above? Round to the nearest whole number. accounts

b. How much revenue per account would be sufficient for Rotelco to break even if the number of accounts remained constant? Round to the nearest dollar. $ per account

Explanation / Answer

100 Accounts 75% 25% Revenue 58200 Cost of revenue 24400 18300 6100 Selling & Admin exp 16900 12675 4225 Depreciation 6400 per account variable cost Cost of revenue = Variable 18300 183 Selling & Admin exp = Variable 12675 126.75 309.75 Total fixed exp = 6100+4225+6400 16725 Break even number of accounts Contribution margin per account sales = 582 Variable exp 309.75 Contribution 272.25 Break even no. of account = Fixed exp ÷ contribution per account 16275 ÷ 272.25 60 Breakeven revenue per account = Sales = X*100 Variable exp 309.75*100 Fixed Cost 16275 For breakeven revenue following statement shall be true : 100X -309.75*100 -16275 = 0 X = $ 472.50

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