Question 1)

Variable expenses: “Power” and “Operations: hourly personnel”

Fixed expenses: The rest of the expenses

Question 2)

cost per revenue hour = amount of variable expense/ total number of revenue hours

For the non-variable expenses, we could add up Rent ($8,000), Custodial services ($1,240), Computer
leases ($95,000), Maintenance ($5,400), Depreciation of Computer equipment ($25,500) ; Office
equipment and fixtures ($680), Operations: salaried staff ($21,600), Systems development and
maintenance ($12,000), Administration ($9,000), Sales ($11,200) Sales promotion ($8,083) and
corporate services ($15,236) which would total $212,939

Question 3)

Contribution margin = Revenues - Variable expenses

Revenues Intracompany sales 205 hours * $400

= $82,000

Commercial sales 138 hours * $800

= $110,400
Total Revenues = $82,000 + $110,400 = $192,400

Variable Costs Intracompany sales 205 hours * $28,7

Total Variable Costs
Contribution Income
= $5,883.50
Commercial sales 138 hours * $28,7
= $3,960.60
= $5,883.50 + $3,960.60 = $9,844.10
= $192,400 - $9,844.10 = $182,555.90
Question 4)

Breakeven Hours =

(Total Fixed Costs) - (Allowed Costs after Variable Costs of Intercompany Operations) / Contribution per
Hour

= ($212,953) - [$82,000-(205 Hours*28.70=$5,883.50)] / ($800-$28.70)

= 177.4 Hours for Jan

= ($212,013) - [$82,000-(205 Hours*28.70=$5,883.50)] / ($800-$28.70)

= 176.2 Hours for Feb

= ($212,939) - [$82,000-(205 Hours*28.70=$5,883.50)] / ($800-$28.70)

= 177.4 Hours for March

Question 5)

1. The demand reduces by 30% so you will have 96,6 (rounding up 97) of commercial revenue
hours . The fixed costs stay the same so we have to look at the total contribution:

138 revenue hours: 138 x ( price – variable cost) = 138 x (800 – 28,7) = 106 439,4

97 revenue hours : 97 x (1000 – 28,7) = 94 216,1

 Your profit goes down by 12 223,3 (106 439,4 – 94 216,1)

2. The demand goes up by 30% so you will have 179,4 (rounding down 179) commercial revenue
hours.

138 revenue hours: contribution = 106 439,4

180 revenue hours: 179 x (600 -28,7) = 102 262,7

 Profit reduces by 4 176,7 ( 106 439,4 -102 834)

 3. Increased promotion would increase revenue hours by up to 30% which would give 179,4
(rounding down 179) revenue hours.

138 revenue hours: contribution = 106 439,4

179 revenue hours: 179 x (800 – 28,7) = 138 062,7

No reported loss means that we should at least be breaking even. We already calculated that we
need 177,4 commercial revenue hours to break even.
 contribution : 177,4 x (800-28,7) = 136 828,62

So the extra amount that we can spend for the extra promotion is 1 234,08 ( 138 062,7 – 136
828,62)

Question 6)