Cost Volume Profit

$16.00

Description

The City
of Mirada wants to offer cable television to its residents in 2013. The city
has approached a company called CableVision to run its cable operations. After
negotiating with key parties, CableVision has made the following agreements:

•
Mirada will offer
its residents a basic set of 25 cable television stations at a rate of $32.49
per month (all of the revenue will go to CableVision).

•

•
The City of
Mirada will maintain the physical facilities, and CableVision will pay the city
$1,200,000 per year plus $3.75 per cable subscriber per month.

•

•
CableVision will
actually pay another company to broadcast the 25 channels and will pay this
company a monthly fixed fee of $60,000 plus a monthly amount of $8.00 per cable
subscriber per month.

•

CableVision
will incur additional operating costs for billing, program news mailings, etc.
These costs will include a fixed component of $115,000 per month, and a
variable component of 8.5% of monthly revenue.

CableVision
has several questions about its monthly revenues, costs, and profits in 2013.

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

1. What is
the estimated monthly contribution margin per cable subscriber for CableVision
in 2013?

2. What
are the estimated total monthly fixed costs for CableVision in
2013?

Tries
0/8

Part
B

3. What is
CableVision’s estimated monthly operating income if 17,000 residents
subscribe?

4. How
many monthly subscribers would be required for CableVision to break even in
2013?

5. How
many monthly subscribers would be required for CableVision to earn $23,000 per
month in 2013?

6.
Assuming a tax rate of 31%, what must revenue be in order for CableVision to
earn $23,000 per month in 2013?

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