The City of Mirada wants to offer cable television to its residents in 2009. 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 $1,400,000 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 $8.25 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 $120,000 per month, and a variable component of 7.0% of monthly revenue.
CableVision has several questions about its monthly revenues, costs, and profits in 2009.
REQUIRED [ROUND YOUR ANSWERS TO PART A, QUESTION 1 AND PART C, QUESTION 8 TO THE NEAREST CENT; ROUND ALL OTHER INTERMEDIATE COMPUTATIONS TO THE NEAREST UNIT OR NEAREST DOLLAR.]
Part A (6 tries; 7 points)
1. What is the estimated monthly contribution margin per cable subscriber for CableVision in 2009?
2. What are the estimated total monthly fixed costs for CableVision in 2009?
To calculate the estimated monthly contribution margin per cable subscriber for CableVision in 2009, we need to consider the revenue and costs associated with each subscriber.
Revenue per subscriber:
The basic set of 25 cable television stations is offered at a rate of $32.49 per month.
Costs per subscriber:
CableVision will pay the city $3.75 per cable subscriber per month.
CableVision will pay another company a monthly fee of $8.25 per cable subscriber per month.
Contribution margin per subscriber:
Revenue per subscriber - Costs per subscriber
Substituting the values:
Revenue per subscriber = $32.49
Costs per subscriber = $3.75 + $8.25
1. Contribution margin per subscriber = $32.49 - ($3.75 + $8.25)
Now let's calculate the estimated total monthly fixed costs for CableVision in 2009.
Fixed costs include the following components:
- Physical facility payment to the city: $1,400,000 per year = $1,400,000 / 12 months
- Monthly fees paid to the broadcasting company: $60,000
2. Total monthly fixed costs = Physical facility payment + Monthly broadcasting fees
Now let's calculate the values.
1. Contribution margin per subscriber = $32.49 - ($3.75 + $8.25)
2. Total monthly fixed costs = ($1,400,000 / 12) + $60,000
To find the estimated monthly contribution margin per cable subscriber for CableVision in 2009, we need to calculate the revenue per cable subscriber and deduct the variable costs per cable subscriber.
1. Revenue per cable subscriber:
The rate for the basic set of 25 cable television stations is $32.49 per month. This revenue goes to CableVision. So the revenue per cable subscriber is $32.49.
2. Variable costs per cable subscriber:
CableVision pays another company to broadcast the 25 channels. They pay a monthly fixed fee of $60,000 plus a monthly amount of $8.25 per cable subscriber. The variable cost per cable subscriber is $8.25.
Now, we can calculate the estimated monthly contribution margin per cable subscriber:
Estimated Contribution Margin per cable subscriber = Revenue per cable subscriber - Variable costs per cable subscriber
Estimated Contribution Margin per cable subscriber = $32.49 - $8.25
Estimated Contribution Margin per cable subscriber = $24.24
Therefore, the estimated monthly contribution margin per cable subscriber for CableVision in 2009 is $24.24.
To find the estimated total monthly fixed costs for CableVision in 2009, we need to add up all the fixed costs.
The fixed costs for CableVision in 2009 include:
- $1,400,000 per year paid to the City of Mirada
- $60,000 per month paid to the company broadcasting the 25 channels
- $120,000 per month for additional operating costs
1 year = 12 months
Annual payment to the City of Mirada = $1,400,000
Monthly payment to the City of Mirada = $1,400,000 / 12 = $116,667
Total fixed costs = Monthly payment to the City of Mirada + Monthly payment to the company broadcasting the channels + Additional operating costs
Total fixed costs = $116,667 + $60,000 + $120,000
Total fixed costs = $296,667
Therefore, the estimated total monthly fixed costs for CableVision in 2009 are $296,667.