Textbook Problem

Break even analysis for a service company

Sprint Nextel is one of the largest digital wireless .service providers in the United States. In a recent year, it had approximately 32.5 million direct subscribers (accounts) that generated revenue of $35,345 million. Costs and expenses for the year were as follows (in millions):

Cost of revenue	$20,841
Selling, general, and administrative expenses	9,765
Depreciation	2,239

Assume that 70% of the cost of revenue and 30% of the selling, general, and administrative expenses are variable to the number of direct subscribers (accounts).

A. What is Sprint Nextel’s break-even number of accounts, using the data and assumptions given? Round units (accounts) and per-account amounts to one decimal place.

B. How much revenue per account would be sufficient for Sprint Nextel to break even if the number of accounts remained constant?