Analyze Star Stream’s 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. 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

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18-03-2022
Mathematics

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Analyze Star Stream’s 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. 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

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anthougo anthougo · Answer 1 · 2022-03-22T19:23:35+01:00

a. The determination of the break-even number of subscribers for Star Stream is as follows:

Break-even number of subscribers = Fixed Costs/Contribution Margin per subscriber

= 35,294,118 ($3,000,000,000/$85)

b. If Star Stream increases the annual content costs to $2,600,000,000, the break-even number of subscribers will increase to 42,352,941 subscribers.

= 42,352,941 ($3,600,000,000/$85)

c. The annual subscription needs to increase from $120 to $142 to maintain the same break-even as in (a).

What is the break-even analysis?

The break-even analysis is a financial tool for determining the price level at which the total revenue equals the total costs (variable and fixed).

Using the break-even analysis model, one can determine the number of units to sell so that fixed costs are recovered.

Question Completion, Data, and Calculations:

Server lease costs per year = $100,000,000

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

Fixed operating costs per year = $900,000,000

Total fixed costs per year = $3,000,000,000

Bandwidth costs per subscriber per year = $15

Variable operating costs per subscriber per year = $25

Subscription per year = $125

Contribution margin per subscriber per year = $85 ($125 - $15 - $25)

Contribution margin ratio = 68% ($85/$125 x 100)

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?

c. Assume the same content cost scenario in (b). How much would the annual subscription need to change to maintain the same break-even as in (a)?

Thus, with an annual subscription of $142, the variable cost of $40 per subscriber per year, contribution margin of $102 ($142 - $40), and a total fixed cost of $3,600,000,000, the break-even number of subscribers will remain 35,294,118 ($3,600,000,000/$102).

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