6.10.12.13.14

Analyze Star Streams cost-volume-profit relationships

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 ________

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? Break-even number of subscribers will increase to _____ subscribers.

c. Assume the same content cost scenario as in (b). How much would the annual subscription need to change in order to maintain the same break-even as in (a)? The annual subscription need to increase from _______$ to ______$ in order to maintain the same break-even as in (a).

Sales mix and break-even analysis

Conley Company has fixed costs of $13,802,000. The unit selling price, variable cost per unit, and contribution margin per unit for the company's two products follow:

Product	Selling Price		Variable Cost per Unit			Contribution Margin per Unit
Yankee	$335		$170			$165
Zoro	245		220			25

The sales mix for products Yankee and Zoro is 30% and 70%, respectively.

Determine the break-even point in units of Yankee and Zoro of the overall (total) product, E. If required, round your answers to the nearest whole number.

Product Yankee: ______ units Product Zoro: ______ units

High-low method

Ziegler Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:

Units Produced			Total Costs
99,500			$31,168,250
118,500			34,654,750
131,500			37,040,250

1. Determine the variable cost per unit and the total fixed cost. Round your answer for variable cost to the nearest cent. Round your answer for total fixed costs to the nearest dollar.

   Variable cost:	_____ per unit
   Total fixed cost:	$______

2. Based on part (a), estimate the total cost for 83,000 units of production. Round your answer to the nearest dollar.

   Total cost for 83,000 units:

   $_______

Sales mix and break-even sales

Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $588,000, and the sales mix is 60% bats and 40% gloves. The unit selling price and the unit variable cost for each product are as follows:

Products	Unit Selling Price		Unit Variable Cost
Bats	$90		$60
Gloves	130		75

1. Compute the break-even sales (units) for the overall enterprise product, E.

   ______ units

2. How many units of each product, baseball bats and baseball gloves, would be sold at the break-even point?

   Baseball bats:	_____ units
   Baseball gloves:	_____ units