Question

Star Stream is a subscription-based video streaming service. Subscribers pay $120 per year for the service. Star Stream licenses and develops content for its subscribers. In addition, Star Stream leases servers to hold this content. These costs are not variable to the number of subscribers, but must be incurred regardless of the subscriber base. In addition, Star Stream compensates telecommunication companies for bandwidth so that Star Stream customers receive fast streaming services. These costs are variable to the number of subscribers. These and other costs are as follows: Enter your answers in whole dollars. Server lease costs per year $ 100,000,000 Content costs per year 2,000,000,000 Fixed operating costs per year 900,000,000 Bandwidth costs per subscriber per year 15 Variable operating costs per subscriber per year 25 a. Determine the break-even number of subscribers. subscribers b. Assume Star Stream planned to increase available programming and thus increase the annual content costs to $2,600,000,000. What impact would this change have on the break-even number of subscribers

Answer 1

Answer:

Total fixed costs = $3,00,00,00,000  

Break-even number of subscribers  = 37,500,000 Subscribers

Break-even number of subscribers will increase to 45,000,000

Explanation:

given data

Price per subscriber = $120 per year

Bandwidth cost per subscriber  = $15 Per year      

Operating cost per subscriber = $25 Per Year

Server lease costs per year = $10,00,00,000    

Content costs per year = $2,00,00,00,000    

Operating costs per year = $90,00,00,000

solution

we get here Total variable costs that is

Total variable costs = $15 + $25

Total variable costs = $40 per year

and here Contribution margin per subscriber per year will be

Contribution margin per subscriber per year = Price Per Subscriber - Variable Cost Per Subscriber   .................1

Contribution margin per subscriber per year = $120 - $40

Contribution margin per subscriber per year = $80

and

now we get here Break-even number of subscribers that is express as

Break-even number of subscribers  = total fixed cost ÷ contribution margin per subscriber    .............................2

so here Total fixed costs will be

Total fixed costs = $10,00,00,000 + $2,00,00,00,000 + $90,00,00,000

Total fixed costs = $3,00,00,00,000  

so here put value in equation 2 we get

Break-even number of subscribers  = $3,000,000,000 ÷ $80

Break-even number of subscribers  = 37,500,000 Subscribers

and

Number of subscribers to break-even will be

Number of subscribers to break-even = $3,600,000,000 ÷ $80

Number of subscribers to break-even = 45,000,000

Break-even number of subscribers will increase to 45,000,000