The City of Mirada wants to offer cable television to its residents in 2012. The city has approached a company called CableVision to run its cable operations. After negotiating with key parties, CableVision has made the following agreements:
Mirada will offer its residents a basic set of 25 cable television stations at a rate of $32.49 per month (all of the revenue will go to CableVision).
The City of Mirada will maintain the physical facilities, and CableVision will pay the city $105,000 per month plus $4.00 per cable subscriber per month.
CableVision will actually pay another company to broadcast the 25 channels and will pay this company an annual fixed fee of $730,000 plus a monthly amount of $7.75 per cable subscriber per month.
CableVision will incur additional operating costs for billing, program news mailings, etc. These costs will include a fixed component of $110,000 per month, and a variable component of 9.0% of monthly revenue.
CableVision has several questions about its monthly revenues, costs, and profits in 2012.
Part A
1. What is the estimated monthly contribution margin per cable subscriber for CableVision in 2012?
Incorrect on #1
2. What are the estimated total monthly fixed costs for CableVision in 2012?
Incorrect on #2