Break-Even Analysis Media outlets often have web sites that provide in-depth cov
ID: 2723956 • Letter: B
Question
Break-Even Analysis
Media outlets often have web sites that provide in-depth coverage of news and events. Portions of these web sites are restricted to members who pay a monthly subscription to gain access to exclusive news and commentary.
These web sites typically offer a free trial period to introduce viewers to the web site. Assume that during a recent fiscal year, one outlet spent $3,793,160 on a promotional campaign for its web site, offering two free months of service for new subscribers. In addition, assume the following information:
Determine the number of new customer accounts needed to break even on the cost of the promotional campaign. In forming your answer, (1) treat the cost of the promotional campaign as a fixed cost, and (2) treat the revenue less variable cost per account for the subscription period as the unit contribution margin.
......... accounts
Explanation / Answer
Fixed cost= $3793160
$7
Break even point= Fixed cost per month /(Revenue per month per customer subscription-Variable cost per month per customer subscription)
Now total fixed cost is for 1 year so we have to find fixed cost per month
Fixed cost per month= Total yearly cost/12
=3793160/12
Fixed cost per month=316096.67
Break even point= 316096.67/(21-7)
Break even point=22578
For yearly campaign break even point= 22578*12=270940
Thus the number of new customer accounts needed to break even on the cost of the promotional campaign will be 270940 account.
Revenue per month per customer subscription $21 Variable cost per month per customer subscription$7
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