Question

CableVision has been approached by the City of Mirada to run its cable operations in 2020. After negotiating with key parties, CableVision has made the following agreements:It will offer Mirada residents a basic set of 25 cable television stations at a rate of $32.99 per month.It will pay the city $100,000 per month plus $2.50 of the monthly cable subscriber rate per month to maintain the physical facilities.It will actually pay another company an annual fixed fee of $790,000 plus $7.75 per cable subscriber per month to broadcast the 25 channels.CableVision estimates that operating costs for billing, program news mailings, etc. will be $110,000 per month plus 7% of the monthly subscriber rate.CableVision has several questions about its monthly revenues, costs, and profits in 2020.

1. What is the estimated monthy contribution margin per cable subscriber for CableVision in 2020? 2. What are the estimated total monthly fixed costs for Cablevision in 2020?

Answer 1

Answer:

1. $20.4307

2. $275,833.33

Explanation:

The computation is shown below:

1. The estimated monthly contribution margin per cable subscriber is

= Selling price per unit - variable cost per unit

where,

Selling price per unit is $32.99

And, the variable cost per unit is

= $2.50 + $7.75 + $32.99 × 7%

= $2.50 + $7.75 + $2.3093

= $12.5593

So, the contribution margin per cable is

= $32.99 - $12.5593

= $20.4307

2. The estimated total monthly fixed cost is

= $100,000 + $110,000 + $790,000 ÷ 12 months

= $100,000 + $110,000 + $65,833.33

= $275,833.33