Question

ableVision has been approached by the City of Mirada to run its cable operations in 2020. 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 $32.99 per month. • It will pay the city $1,300,000 per year plus $2.75 of the monthly cable subscriber rate per month to maintain the physical facilities. • It will actually pay another company a monthly fixed fee of $65,000 plus $7.50 per cable subscriber per month to broadcast the 25 channels. Cablevision estimates that operating costs for billing, program news mailings, etc. will be $130,000 per month plus 9% of the monthly subscriber rate. CableVision has several questions about its monthly revenues, costs, and profits in 2020. REQUIRED (ROUND YOUR ANSWER TO PART A, QUESTION 1 TO THE NEAREST CENT; ROUND ALL OTHER ANSWERS TO THE NEAREST UNIT OR NEAREST DOLLAR.] Part A (8 tries; 8 points) 1. What is the estimated monthy contribution margin per cable subscriber for CableVision in 2020? $19.77 2. What are the estimated total monthly fixed costs for CableVision in 2020? $303,333 You are correct. Previous Tries Your receipt no. is 156-9786 Your answers are correct, but just to make sure that there are no rounding issues, use $19.77 for the estimated contribution margin per subscriber and $303,333 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 2020 if 18,000 residents subscribe? 52527 2. How many monthly subscribers would be required for CableVision to break even in 2020? 15343 3. How many monthly subscribers would be required for CableVision to earn $25,000 per month in 2020? 16608 4. Assuming a tax rate of 33%, how many monthly subscribers would be required for CableVision to earn $25,000 per month in 2020? 19175 Submit Answer Incorrect. Tries 1/8 Previous Tries

Answer 1

Part A

1. $19.77

Sales	$            32.99
Variable costs
Physical facilities	$               2.75
Broadcast	$               7.50
Operating costs	$               2.97
Total variable costs	$            13.22
Contribution	$            19.77

2. $303,333

Fixed costs
Physical facilities	$        108,333
Broadcast	$          65,000
Operating costs	$        130,000
Total fixed costs	$        303,333

Part B

1. $ 52,527

Units	18,000
Contribution per unit	$      19.77
Contribution	$ 355,860
Fixed costs
Physical facilities	$ 108,333
Broadcast	$    65,000
Operating costs	$ 130,000
Total fixed costs	$ 303,333
Operating income	$    52,527

2. 15,343

Break even = Total fixed cost / Contribution per unit

= $303,333 / $19.77

= 15,343 (rounded)

3. 16,608

Target income = $25,000

Target contribution = Target income + Fixed costs

= $25,000 + $303,333

= $328,333

No of subscribers = Target contribution / Contribution per unit

= $328,333 / $19.77

= 16,608

4. 17,230

Target income after tax = $25,000

Tax rate is 33%

Target income before tax = $25,000 / (1-0.33)

= $37,313

Target contribution = Target income + Fixed costs

= $37,313 + $303,333

= $340,646

No of subscribers = Target contribution / Contribution per unit

= $340,646 / $19.77

= 17,230