Nextel Communications Inc. is one of the largest digital wireless service providers in the United States. In a recent year, it had 8,666,500 million handsets (accounts) that generated revenue of $7,689,000,000. Costs and expenses for the year were as follows:
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,869,000,000
Selling, general, and administrative expenses . . . . . . 3,020,000,000
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,746,000,000
Assume that 70% of the cost of revenue and 40% of the selling, general, and administrative expenses are variable to the number of handsets (accounts).
a. What is Nextel’s break-even number of accounts, using the data and assumptions above? Round per-unit calculations to the nearest dollar.
b. How much revenue per account would be sufficient for Nextel to break even if the number of accounts remained constant?