eBook Calculator Break-even analysis for a service company Rotelco is one of the

Question

eBook Calculator Break-even analysis for a service company 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 $37,400. Costs and expenses for the year were as follows: Cost of revenue Selling, general, and administrative expenses Depreciation Assume that 75% o the cost of revenue and 35% o the selling general, and administrative expenses are variable to the number of die t subscribers (accounts). In part (a) and (b), round all interim calculations and final answers to one decimal place. $17,200 10,100 4,100 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

Answer to Part a)
Revenue per account = 37,400 / 100
Revenue per account = $374

Variable Cost of Revenue = $17,200 * 75%
Variable Cost of Revenue = $12,900
Variable Cost of Revenue (per unit) =12,900 / 100
Variable Cost of Revenue (per unit) = $129
Fixed Cost of Revenue = $17,200 - $12,900 = $4,300

Variable Selling, General and administrative Expenses = $10,100 * 35%
Variable Selling, General and administrative Expenses = $3,535
Variable Selling, General and administrative Expenses (per unit) = 3,535 / 100
Variable Selling, General and administrative Expenses (per unit) = $35.35
Fixed Selling, General and administrative Expenses = $10,100 - $3,535
Fixed Selling, General and administrative Expenses = $6,565

Total Variable Expense (per unit) = $129 + $35.35
Total Variable Expense (per unit) = $164.35

Contribution Margin per unit = $374 - $164.35
Contribution Margin per unit = $209.65

Total Fixed Cost = $4,300 + $6,565 + $4,100
Total Fixed Cost = $14,965

Break Even (Number of accounts) = Fixed Cost / Contribution Margin per unit
Break Even (Number of accounts) = 14,965 / 209.65
Break Even (Number of accounts) = 71.38 or 71 accounts

Answer to Part b)

Contribution Margin Ratio = Contribution Margin / Sales * 100
Contribution Margin Ratio = 209.65 / 374 * 100
Contribution Margin Ratio = 56%

Profit = Contribution Margin – Fixed Cost
At Break Even Point, Profit is Zero.

Let the Selling price per account be “$x”
$0 = (100 * $x * 0.56) - $14,965
56x = 14,965
x = $267

Therefore, Revenue per account is $267 to attain Break Even at 100 Subscriber.

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