Media outlets often have websites that provide in-depth coverage of news and events. Portions of these websites are restricted to members who pay a monthly subscription to gain access to exclusive news and commentary.These websites typically offer a free trial period to introduce viewers to the website. Assume that during a recent fiscal year, one outlet spent $2,686,200 on a promotional campaign for its website that offered two free months of service for new subscribers. In addition, assume the following information:Number of months an average new customer stays with the service(including the two free months)20 monthsRevenue per month per customer subscription$20Variable cost per month per customer subscription$7Determine the number of new customer accounts needed to break even on the cost of the promotional campaign. In forming your answer, (1) treat the cost of the promotional campaign as a fixed cost, and (2) treat the revenue less variable cost per account for the subscription period as the unit contribution margin. accounts

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Asked Aug 29, 2019
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Media outlets often have websites that provide in-depth coverage of news and events. Portions of these websites are restricted to members who pay a monthly subscription to gain access to exclusive news and commentary.

These websites typically offer a free trial period to introduce viewers to the website. Assume that during a recent fiscal year, one outlet spent $2,686,200 on a promotional campaign for its website that offered two free months of service for new subscribers. In addition, assume the following information:

Number of months an average new customer stays with the service
(including the two free months)

20 months
Revenue per month per customer subscription $20
Variable cost per month per customer subscription $7

Determine the number of new customer accounts needed to break even on the cost of the promotional campaign. In forming your answer, (1) treat the cost of the promotional campaign as a fixed cost, and (2) treat the revenue less variable cost per account for the subscription period as the unit contribution margin.
 accounts

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Expert Answer

Step 1

Determine the revenue per customer account.

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(Number of months of service availed by a new Number of months of free service provided Revenue per month per customer subscription (20months-2months)x $20.00 per month Revenue per customer account =$360

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Step 2

Determine the variable cost per customer account.

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(Number ofmonths 'Variable cost per Variable cost per ofservice availed by month per customer customer account a new custom er subscription 20 monthsx$7.00 per month =$140

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Step 3

Determine the contribution ...

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Contribution Margin Selling price (Revenue per account) per account Variable cost pe per account account $360 per account-$140 per account =$220 per account

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