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 million direct subscribers (accounts) that generated revenue of $30,200 million. Costs and expenses for the year were as follows:

Assume that 70% of the cost of revenue and 30% 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.
million 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.
$ million per account

Explanation / Answer

Req A; Total Variable Cost: Cost of revenue (14500*70%) 10150 Sselling gen. and admin expense (8800*30%) 2640 Total variable cost: 12790 Number of accounts 100 Vvariable cost per account 127.9 Total sales revenue 30200 Sales revenue per account 302 Contribution margon per account (302-127.90) 174.1 Total Fixed Cost: Cost of Goods sold 14500*30%) 4350 Selling admin (8800*70%) 6160 Depreciation 3300 Total Fixed Cost: 13810 Break even in terms of number of accounts : Fixed cost / Contribution margin per account 13810 / 174.10 = 79.32 millions accounts Req Bb: Fixed cost: $13810 million Number of account : 100 million Contribution margin required per account (to be at break even): $ 138.10 per acount Variable cocst per account: 127.90 Therefore, Revenue per account: 127.90+ 138.10 = $266

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