Question

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 $46,500. Costs and expenses for the year were as follows: Cost of revenue $20,500 Selling, general, and administrative expenses 13,500 Depreciation 5,100 Assume that 60% of the cost of revenue and 35% of the selling, general, and administrative expenses are variable to the number of direct subscribers (accounts).

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)

Answer 1

SOLUTION

Let revenue per account be X.

Breakeven = Fixed Costs / (Revenue per account - Variable cost per account)

100 = $22,075 / (X- $170)

100X - $17,000 = $22,075

100X = $22,075 + $17,000

100X = $39,075

X = $39,075/ 100

X = $391

Calcuataion of Fixed costs and Variable Costs-

Particulars	Amount ($)
Variable cost per account-
Cost of Revenue ($20,500 * 60%)	12,300
Selling, general and administrative Expenses ($13,500 * 35%)	4,725
Total variable costs	17,025
Divided by number of accounts	100
Variable cost per account	170
Fixed costs-
Cost of Revenue ($20,500 * 40%)	8,200
Selling, general and administrative Expenses ($13,500 * 65%)	8,775
Depreciation	5,100
Total Fixed Costs	22,075