CVP Analysis Using Published Financial Statements (LO3, 4)

Condensed data in thousands of dollars (000) from Netflix’s 2007 and 2008 income statements follow:

2008 2007 REVEMUGS apace ne nme nt a ear oi cl knc ant Shs ena $1,364,661 $1,205,340 Cost of revenues and operating expenses................ (1,243,155) (1,113,567)

OperatingiprOtiteemmmerr secon ee soon rst fee teoke necator tee $ 121,506 BS RLS:

Required

a. Develop a cost-estimation equation for Netflix’s annual cost of revenues and operating expenses.

b. Determine Netflix’s annual break-even point.

c. Predict operating profit for 2009, assuming 2009 sales of $1,670,269 thousand.

d. Identify the assumptions required to use the equations and amounts computed above.