CableVision has been approached by the City of Mirada to run its cable operation
ID: 2421952 • Letter: C
Question
CableVision has been approached by the City of Mirada to run its cable operations in 2016. After negotiating with key parties, CableVision has made the following agreements:
It will offer Mirada residents a basic set of 25 cable television stations at a rate of $33.49 per month.
CableVision will pay the city $85,000 per month plus $2.50 per cable subscriber per month to maintain the physical facilities.
CableVision will actually pay another company an annual fixed fee of $730,000 plus $8.75 per cable subscriber per month to broadcast the 25 channels.
CableVision estimates that operating costs for billing, program news mailings, etc. will be $125,000 per month plus 9% of monthly revenue.
CableVision has several questions about its monthly revenues, costs, and profits in 2016.
Questions:
1. Assuming a tax rate of 34%, what must revenue be in order for CableVision to earn $21,000 per month in 2016?
2. Some of CableVision's managers are uncertain about their estimate of monthly fixed operating costs. Assuming that 22,000 residents subscribe, how large can monthly fixed operating costs be for CableVision to still earn $21,000 per month in 2016 (ignore taxes)?
Part A (6 tries; 8 points) 1. What is the estimated monthly contribution margin per cable subscriber for CableVision in 201? 19.2300 2. What are the estimated total monthly fixed costs for CableVision in 2016? 270833 You are correct. Previous Tries Your receipt no. is 150-5356 Your answers are correct, but just to make sure that there are no rounding issues, use $19.23 for the estimated contribution margin per subscriber and $270,833 for the estimated monthly fixed costs in Parts B and C Part B (8 tries; 8 points) 1. What is CableVision's estimated monthly operating income in 2016 if 20,000 residents subscribe? #3 IS CORRECT 113767 2. How many monthly subscribers would be required for CableVision to break even in 2016? #4 IS CORRECT 14084 3. How many monthly subscribers would be required for CableVision to earn $21,000 per month in 2016? 15176 #5 IS CORRECT 4. Assuming a tax rate of 34%, what must revenue be in order for CableVision to earn $21,000 per month in 2016? #6 IS INCORRECT-the answer you submitted the contribution margin necessary to reach the profit goal, but the question asks for the revenue necessary to reach the profit goal Submit Answer Incorrect. Tries 3/8 Previous Tries Part C (4 tries; 4 points) Some of CableVision's managers are uncertain about their estimate of monthly fixed operating costs. Assuming that 22,000 residents subscribe, how large can monthly fixed operating costs be for CableVision to still earn $21,000 per month in 2016 (ignore taxes)? 402060 Incorrect on #7 The question is asking how large monthly operating fixed costs can be, not monthly total fixed costsExplanation / Answer
A Cable Vision Contribution margin statement Details Variable Amt/subscriber per month Total Amt per month Subscribers nos Revenue 33.49 - Variable payment to City 2.50 - Variable pay to another company 8.75 - Operating cost @9% of sales revenue 3.01 - Total Variable cost 14.26 - contribution margin $ 19.23 - Fixed costs per month Fixed payment to city/month 85,000 Fixed payment to another company/month= 60,833 Fixed Operating Cost per month 125,000 Total fixed cost per month $ 270,833.33 B If 20000 residents subscribe, Details Variable Amt/subscriber per month Total Amt per month Subscribers 20,000 nos Revenue 33.49 669,800 Variable payment to City 2.50 50,000 Variable pay to another company 8.75 175,000 Operating cost @9% of sales revenue 3.01 60,282 Total Variable cost 14.26 285,282 contribution margin $ 19.23 384,600 Fixed costs per month Fixed payment to city/month 85,000 Fixed payment to another company/month= 60,833 Fixed Operating Cost per month 125,000 Total fixed cost per month $ 270,833.33 1 Net Operating Income per month $ 113,766.67 2 Total Fixed cost 270,833.33 Contrinbution Margin per subscriber= 19.23 Break even Subscriber nos=278333/20.43= 14,084 nos 3 Required Earning 21,000 Total Fixed cost 270,833.33 Tota Required contribution 291,833.33 Contrinbution Margin per subscriber= 19.23 Required subscriber nos=299333/20.43 15,176 nos 4 Tax rate 34% Post tax earning required 2,100 Required Pretax Earning 3,181.82 Total Fixed cost 270,833.33 Tota Required contribution 274,015.15 Contrinbution Margin per subscriber= 19.23 Required subscriber nos=281564/20.43 14,249 nos C Contribution margin statement Details Variable Amt/subscriber per month Total Amt per month Subscribers 22,000 nos Revenue 33.49 736,780 Variable payment to City 2.50 55,000 Variable pay to another company 8.75 192,500 Operating cost @9% of sales revenue 3.01 66,310 Total Variable cost 14.26 313,810 Total contribution margin 19.23 423,060 Required earning 21,000 Maximum fixed cost /month 402,060 Less Fixed payment to cable city/month 85,000 Less Fixed payment to another company/month= 60,833 Maximum Fixed operating cost /month $ 256,226.67