Media outlets such as ESPN and Fox Sports often have Web sites that provide in-depth coverage of
Question:
Media outlets such as ESPN and Fox Sports often have Web sites that provide in-depth coverage of news and events. Portions of these Web sites are restricted to members who pay a monthly subscription to gain access to exclusive news and commentary. These Web sites typically offer a free trial period to introduce viewers to the Web site. Assume that during a recent fiscal year, ESPN.com spent $20,900,000 on a promotional campaign for its Web site, offering two free months of service for new subscribers. In addition, assume the following information:
Number of months an average new customer stays with the
service (including the two free months) ........ 18 months
Revenue per month per customer subscription ....... $9.95
Variable cost per month per customer subscription ...... $4.20
Determine the number of new customer accounts needed to break even on the cost of the promotional campaign. In forming your answer,
(1) Treat the cost of the promotional campaign as a fixed cost, and
(2) Treat the revenue less variable cost per account for the subscription period as the unit contribution margin.
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
The cost of the promotion campaign is the fixed cost in this analysis since were trying to ...View the full answer
