Sorset Neste is one of the largest digital wirless service providers in the Unte

Question

Sorset Neste is one of the largest digital wirless service providers in the Unted States. In a recent year it had approxsimately 32.5 milion drect subscrbers (accounts) that generated revenus of $23,345 mtion Costs and expenses for the year were as folous (in milions)t Cost of revenue $20,041 Seling, genural, and administrative expenses final arswars te ene decirmal place a. What is Sprie sters ansumptons iven mlion accounts b. Hom uch revenue per account inuld be sufficient for Sprint Netw to break "ven f the number of accourta farnarted constant? milton per account

Explanation / Answer

Revenue= $35,345 mil / 32.5 mil = $1087.54 Revenue per acct

Cost of revenue= - 20841 * 70% = 14588.7 Variable and 6252.3 Fixed
SG&A - 9765 * 30% = 2929.5 Variable and 6835.5 Fixed

Contribution Margin: $35,345 - 14588.70 - 2929.50 = $17826.8 mil, or 50.44%
CM per Account = $17826.80 mil / 32.5 mil = $548.52

FC: $6252.3 + 6835.5 + 2239 = $15326.8 mil

(a) BE Accounts: $15326.8 mil / CM per acct 548.52 = 27942 accounts

Proof: 27942 * 1087.54 = 30388 mil BE Revenue * 50.44 % = 15327 mil FC

(b) $1087.54 per acct

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1. Margin of safety = Actual revenue – Break even revenue
Margin of safety = 1,200,000 - 960,000 = 240,000
or
2) 240,000 / 1200,000 = 20%

b.
Break even revenue = Operating expenses / Gross margin %
Break even revenue = 1,875,000 / (1-80%) = 9375000
Margin of safety % = (Actual revenue- Break even revenue )/ Actual revenue = 20%
Actual revenue = Breakeven revenue / (1-20%) = 9,375,000/80% = 11718750

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