Question

An interactive television service that costs $10 per month to provide can be sold on the information highway for $15 per client per month. If a service area includes a potential of 15,000 customers, what is the most a company could spend on annual fixed costs to acquire and maintain the equipment

Answer 1

Answer: $75,000

Explanation:

To answer this question we can multiply the difference between the Selling Price and the cost per client by the number of customers.

This is because that is the figure that gives us the Break-Even Point and spending anything past this point is a loss.

= 15,000 * (15 - 10)

= 15,000 * 5

= $75,000

The most a company could spend on annual fixed costs to acquire and maintain the equipment is $75,000.