Dreak-even analysis for a service company Sprint Nextel ls one of the largest di

Question

Dreak-even analysis for a service company Sprint Nextel ls one of the largest digital wilreless service provlders in the Unlted States. In a recent year, it had approxlmately 32.5 million direct subscribers (accounts) that oenerated revenue of $35,345 milion. Costs and expenses for the year were as follows (in millions) Cost of revenue $20,341 9,765 2,239 Selling, general, and administrative expenses Assume that 70% of the cost o revenue and 30% o he selling general, an administrative expenses are varia e to the number a direct subscribers account n part a and b round al inte in, ca cu ations and answers or e decimal la a. What is Sprint Nextel's break-even number of accounts, using the data and assumptions given? million accounts b. How much revenue per account would be sufficient for Sprint Nextel to break even if the number of accounts remained constant? million per account Check My wont a Fpoed costs drvided by unrt contribution margin quals break-even point in units. b Foed costs dwded by X-variable costs equals number of subscribers. Sohng for X will result in th break-even revenue per account Learning Objective 3.

Explanation / Answer

Fixed cost Cost of revenue 20841*30% 6252.3 Selling, general, and administrative expenses 9765*70% 6835.5 Depreciation 2239 Total fixed cost 15326.8 Break-Even = fixed cost / revenue per account - variable cost per unit Break-Even = 15326.8/(1087.5-539.0) 27.9 million (rounded) accounts Revenue per account 35345/32.5 1087.5 Variable cost per account (in millions): Cost of revenue 20841*70% 14588.7 Selling, general, and administrative expenses 9765*30% 2929.5 Total variable cost 17518.2 Divided by number of accounts 32.5 Variable cost per account (rounded) 539.0 b 32.5 accounts = 15326.8/(X-539) 32.5X-17517.5 = 15326.8 32.5X= 32844.3 X=1010.6 million per account a 27.9 million accounts b 1010.6 million per account

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