Break-Even Analysis Rotelco is one of the largest digital wireless service provi

Question

Break-Even Analysis 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 $30,800. Costs and expenses for the year were as follows: Cost of revenue $14,500 Selling, general, and administrative expenses 8,600 Depreciation 3,400 Assume that 70% of the cost of revenue and 20% of the selling, general, and administrative expenses are variable to the number of direct subscribers (accounts). 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

Sales per unit = 30800

Variable Costs = 14500 * 0.7 + 8600 * 0.2 = 11870

Contribution = Sales - Variable COsts = 30800 - 11870 = 18930 or 189.30 per unit

Fixed Costs = 14500 + 8600 + 3400 - 11870 = 14630

Break Even Point = Fixed Costs / Contribution per unit = 14630 / 189.30 = 77 accounts

Since Break Even = 100 units, revenue = Fixed COst per unit + Variable Cost per unit

Revenue per unit = 14630/100 + 11870/100 = 265 per account

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