Cost Volume Profit
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.]
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?
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?