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Break-even analysis for a service company3 Sprint Corporation (S) is one of the largest digital wireless service providers in the United States. In a recent year, it had approximately 60 million direct subscribers (accounts) that generated revenue of $33,347 million. Costs and expenses for the year were as follows (in millions): Assume that 30% of the cost of revenue and 70% of the selling, general, and administrative expenses are fixed to the number of direct subscribers (accounts). a. What is Sprint’s break-even number of accounts, using the data and assumptions given? Round to one decimal place. b. How much revenue per account would be sufficient for Sprint to break even if the number of accounts remained constant? Round to one decimal place.

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 20, Problem 16E
Textbook Problem
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Break-even analysis for a service company3

Sprint Corporation (S) is one of the largest digital wireless service providers in the United States. In a recent year, it had approximately 60 million direct subscribers (accounts) that generated revenue of $33,347 million. Costs and expenses for the year were as follows (in millions):

Chapter 20, Problem 16E, Break-even analysis for a service company3 Sprint Corporation (S) is one of the largest digital

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

  1. a. What is Sprint’s break-even number of accounts, using the data and assumptions given? Round to one decimal place.
  2. b. How much revenue per account would be sufficient for Sprint to break even if the number of accounts remained constant? Round to one decimal place.

a.

To determine

Compute Company SN’s break-even number of accounts.

Explanation of Solution

Break-even Analysis: It refers to an analysis of the level of operations at which a company experiences its revenues generated is equal to its costs incurred. Thus, when a company reaches at its break-even, it reports neither an income nor a loss from operations. The formula to calculate the break-even point in sales units is as follows:

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit

Compute the Company SN’s break-even number of accounts.

Break-evenpointinSales(units) =FixedCostsContributionMarginperunit=$18,233.2million(1)$341.3peraccount(2)=53.4millionaccounts

Working note (1):

Determine the total fixed cost.

Particulars

Total costs

(in millions)

(A)

Fixed cost percentage (B)

Fixed costs

(in millions)

 (A×B)

Cost of revenue$14,95830%$4,487.4
Selling, general, administration expense$7,99470%$5,595.8
Depreciation$8,150100%$8,150.0
Total fixed costs  $18,233.2

Table (1)

Working note (2):

Calculate the contribution margin per account

b.

To determine

Compute the revenue per account for break-even, if the number of accounts remains constant.

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Chapter 20 Solutions

Financial And Managerial Accounting
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