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 $32.49 per month.
• It will pay the city $1,000,000 per year plus $3.00 of the monthly cable subscriber rate per month to maintain the physical facilities.
• It will actually pay another company a monthly fixed fee of $55,000 plus $8.25 per cable subscriber per month to broadcast the 25 channels.

CableVision estimates that operating costs for billing, program news mailings, etc. will be $115,000 per month plus 7% 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?    

2. What are the estimated total monthly fixed costs for CableVision in 2020?    

Tries 0/8

Part B (8 tries; 8 points)
1. What is CableVision's estimated monthly operating income in 2020 if 19,000 residents subscribe?    

2. How many monthly subscribers would be required for CableVision to break even in 2020?    

3. How many monthly subscribers would be required for CableVision to earn $23,000 per month in 2020?    

4. Assuming a tax rate of 33%, how many monthly subscribers would be required for CableVision to earn $23,000 per month in 2020?   

Part C (4 tries; 4 points)
Some of CableVision's managers are uncertain about their estimate of monthly fixed operating costs. Assuming that 21,000 residents subscribe, how large can monthly fixed operating costs be for CableVision to still earn $23,000 per month in 2020 (ignore taxes)?    

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

А в B answer Part A) 1) estimated contribution margin = Price per subscriber per month - variable cost for physical facilities - variable cost to broadcast - variable billing mailing cost = 32.49 - 3 - 8.25 - (7%*32.49) = $18.97 Thus the answer is $18.97 Estimated monthly fixed cost = amount to be paid to city per month +broadcast monthly fixed fees + fixed operating cost = ( 1000000/12) + 55000 + 115000 = $ 253333 - Thus the correct answer is $ 253333 Part B) Estimated monthly operating income = (contribution margin * number of subscribers - monthly fixed cost = ( 18.97 * 19000) - 253333 = $ 107097

23 2) 24 No. of break even subscribers = fixed cost / contribution margin per unit 25 = 253333 / 18.97 26 = 13354 subcribers 27 Thus the correct answer is 13354 29 3) 30 No. of subscribers to earb desired profit = (desired profit + monthly fixed Profit) / contributionmargin per unit 31 = ( 253333 +23000) / 18.97 32 = $ 14567 33 Thus the correct answer is 14567 Subscribers 35 4) 36 No. of subscribers to earb desired profit = (desired profit + monthly fixed Profit before tax) / contributionmargin per unit 37 = ( 253333 + (23000/67%))/18.97 38 = 15164 Subscribers 39 Thus the correct answer is 15164 Subscribers 70 41 Part ) 2 Monthly Fixed Operating cost = Contribution margin for 21000 residents - fixed cost other than operating cost-desired profit 23 = ( 18.97*21000) - (1000000/12) - 55000 - 23000 44 = $ 237037 25 Thus the correct answer is $ 237037