Exercise 2: Breakeven, Crossover Analyses

 

You wish to start a business offering Internet services, and can charge your subscribers $20 per month. You can rent space for $2,000/month, lease the equipment for $40,800/year, and hire enough help center employees to provide three people to answer help calls around the clock. Each employee is paid $10/hour.  Your alternative would be to subcontract the business to ISPs-R-Us for a monthly equipment charge of $4,000 and fee of $13/month per subscriber.  All other incidental costs (including billing) would average about $2/month per subscriber for both options (ISPs-R-Us and You). Assume an average 30-day month.

 

1.  Using the following table, enter the monthly cost associated with each variable and label it as fixed (F) or variable (V).

 

	F/V	ISPs-R-Us	You
Equipment charge
Subscriber fee
Call center employees
Rent
Incidentals

 

 

2. Showing all calculations, what is the number of customers PER MONTH required to break even with ISPs-R-Us?

 

3. Showing all calculations, what is the number of customers PER MONTH required to break even if you do it on your own?

 

4.  At and above what number of customers PER MONTH should you choose to “go it alone” and not subcontract the business?  (Show all calculations.)