Commercial 123 135 138 Total Revenue Hours 329 316 361 Service Hours 32 32 40 Available Hours 223 164 143 Total Hours 584 512 544 Revenues Jan Feb March Intercompany Sales $82,400 $72,400 $89,200 Commercial Sales Computer Use $98,400 $108,000 $110,400 Other $9,241 $9,184 $12,685 Total Revenue $190,041 $189,584 $212,285 Expenses Space Costs Rent $8,000 $8,000 $8,000 Custodial Services $1,240 $1,240 $1,240 Equipment Cost Computer Leases $95,000 $95,000 $95,000 Maintenance $5,400 $5,400 $5,400 Depreciation Computer Equipment $25,500 $25,500 $25,500 Office Equipment & Fixtures $680 $680 $680 Power $1,633 $1,592 $1,803 Wages And Salaries Operations Fixed $21,600 $21,600 $21,600 Variable cost $7,896 $7,584 $8,664 System Development & Maintenance $12,000 $12,000 $12,000 Administration $9,000 $9,000 $9,000 Sales $11,200 $11,200 $11,200 Materials $9,031 $8,731 $10,317 Sales Promotions $7,909 $7,039 $8,083 Corporate Services $15,424 $15,359 $15,236 Total Expenses $231,513 $229,925 $233,723 Net Income (Loss) -$41,472 -$40,341 -$21,438 Operations Salaries & Wages Distribution Jan Feb March Salaries 21600 21600 21600 Wages $/Hr 24 24 24 Billed Hr 329 316 361 Total 29,496 29,184 30,264 Intra Company Sales Commercial Sales Price /Hr 400 800 Varible Cost /Hr 24 24 Contribution Margin/Hr 376 776 Break Even Analysis S.No Description Amount/Hr A Monthly Avg Fixed Cost 199,093 B Inter Company Sales (hours) 205 C Contribtion Margin /Hr 376 D Inter company Contribtion Margin 77,080 E Fixed Cost to be Recoverd from Commercial Sales 122,013 D Contribtion Margin /Hr 776 G Break Even Commercial Hours 157 Intra Company Sales Commercial Sales Avg Monthly Hours 203 132 Price /Hr 400 800 Varible Cost /Hr 24 24 Contribution Margin/Hr 376 776 Option (a) Increasing Price to Commercial Customers to $1000/hr ,Demand Reduction by 30% Original Option Hours 132 92.40 Price/Hr $800 $1,000 Variable Cost /Hr $24 $24 Contribution Margin/Hr $776 $976 Total Contribution Margin $102,432 $90,182 Contribution Margin will reduce by $12,250 Not recommended to utilize the option. Option (b) Decreasinng Price to Commercial Customers to $600/hr ,Demand increase by 30% Original Option Hours 132 172 Price/Hr $800 $600 Variable Cost /Hr $24 $24 Contribution Margin/Hr $776 $576 Total Contribution Margin $102,432 $98,842 Contribution Margin will reduce by $3,590 Not recommended to utilize the option. Option (c) Incresed promotion will increase demand by 30% Original Option Hours 132 172 Price/Hr $800 $800 Variable Cost /Hr $24 $24 Contribution Margin/Hr $776 $776 Total Contribution Margin $102,432 $133,162 Avg Contribution Margin will go up by $30,730 Max $30,730 can be spent on promotion without having any negative impact. Option (d) Reducing Operation hours to 16 on Weekdays & 8 on saturdays,20% Commecia Sales Reduction Original Option Hours 132 105.60 Price/Hr $800 $800 Variable Cost /Hr $24 $24 Contribution Margin/Hr $776 $776 Total Contribution Margin $102,432 $81,946 Contribution Margin will reduce by $17,917 No clear reduction in Fixed Cost is visible. Power Cost is Likely to be reduced by Approx 1/3 Amount Increasing Price to Commercial Customers to $1000/hr ,Demand Reduction by 30% Remarks 30% Reduction in Demand Price up by $200/hr No change -$12,250 Decreasinng Price to Commercial Customers to $600/hr ,Demand increase by 30% Remarks 30% increase in Demand Price up by $200/hr No change -$3,590 Remarks 30% increase in Demand Price up by $200/hr No change $30,730 Max $30,730 can be spent on promotion without having any negative impact. Reducing Operation hours to 16 on Weekdays & 8 on saturdays,20% Commecia Sales Reduction Remarks 20% Reduction in Demand No change -$20,486 Revenues Jan Feb $82,400 $72,400 Computer Use (Hours X $800/Hr) $98,400 $108,000 Other Income $9,241 $9,184 Total Revenue $190,041 $189,584 Variable Expenses Wages $7,896 $7,584 Contribution Margin $182,145 $182,000 Fixed Expenses Computer Leases $95,000 $95,000 Maintenance $5,400 $5,400 Computer Equipment $25,500 $25,500 Office Equipment & Fixtures $680 $680 Power $1,633 $1,592 Operations $21,600 $21,600 System Development & Mtc $12,000 $12,000 Administration $9,000 $9,000 Sales $11,200 $11,200 Materials $9,031 $8,731 Sales Promotions $7,909 $7,039 Total Fixed expenses $198,953 $197,742 Net Operating Income (Loss) -$16,808 -$15,742 Remarks/Assumptions Intracompany Sales (Hours X $400/Hr) 1. Intracompany Expense payment of Rent,Custodial Services & Corporate Services removed, Assumed as these Inhouse services are not marketable & No cost reduction will be there for Telephone Compnay if discontinuied. 2. Materials ,Power ,Sales Promotions in someway moving with Revenue Hours. But no direct relation was Visible. It represents semi Fixed Costs. Due to lack of details, assumed as fixed Cost. Depreciation Equipment Cost Salaries Commercial Sales March $89,200 $110,400 $12,685 $212,285 $8,664 $203,621 $95,000 $5,400 $25,500 $680 $1,803 $21,600 $12,000 $9,000 $11,200 $10,317 $8,083 $200,583 $3,038 1. Intracompany Expense payment of Rent,Custodial Services & Corporate Services removed, Assumed as these Inhouse services are not marketable & No cost reduction will be there for Telephone Compnay if discontinuied. 2. Materials ,Power ,Sales Promotions in someway moving with Revenue Hours. But no direct relation was Visible. It represents semi Fixed Costs. Due to lack of details, assumed as fixed Cost. Decision : Closing Prestige Data Services or Not Additional Costs and Contribution Margin Reduction (Monthly) S.No Description in $ 1 Additional cost on Account of Market Rate Billing 82,000 2 Contribution Margin forgone 189,255 Total 271,255 Fixed Cost Reduction (Monthly) S.No Description in $ 1 Maintenance 5,400 2 Power Cost 1,676 3 Materials Cost 9,360 4 Sales Promotion Cost 7,677 5 Fixed Salaries 53,800 6 Fixed Assets 26,180 Total 104,093 Monthly Impact of Closing Subsidary -167,163 Addition impact of 4 year Lease -4,560,000 Assumptions/Remarks 1. Telephone Company Will not be able to Realise Rent in Market. 2. Telephone Company Will not be able to Reduce any cost on account of Not giving Custodial & Coporate Services to data Company. Remarks Market Rate is $800/hr,Current Billing Rate is $400/Hr Avg Monthly Contribution Margin Remarks System Development & Maintenance,Admin & Sales Staff As they will be sold at Book Value 1. Telephone Company Will not be able to Realise Rent in Market. 2. Telephone Company Will not be able to Reduce any cost on account of Not giving Custodial & Coporate Services to data Company.