Question: Estimate the effect on income of each of the options Rowe has suggested if Bradley estimates as follows:
A. Increasing the price to commercial customers to $1,000 per hour would reduce demand by 30%.
B. Reducing the price to commercial customers to $600 per hour would increase demand by 30%.
C. Increased promotion would increase sales by up to 30%. Bradley is unsure how much promotion this would take. (How much could be spent and still leave Prestige Data Services with no reported loss each month if commercial hours were increased 30%?)
D. Reducing operations to 16 hours on weekdays, rather than 24 hours, and eight hours on Saturdays would result in a loss of 20% of commercial revenue hours.
|
Revenue Hours
|
January
|
February
|
March
|
|
Intercompany
|
206
|
181
|
223
|
|
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
|
|
January
|
February
|
March
|
|
Revenues
|
|
|
|
|
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
|
|
9,240
|
9,240
|
9,240
|
|
Equipment costs
|
|
|
|
|
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 and fixtures
|
680
|
680
|
680
|
|
Power
|
1,633
|
1,592
|
1,803
|
|
128,213
|
128,172
|
128,383
|
|
Wages and salaries
|
|
|
|
|
Operations
|
29,496
|
29,184
|
30,264
|
|
Systems development and maintenance
|
12,000
|
12,000
|
12,000
|
|
Administration
|
9,000
|
9,000
|
9,000
|
|
Sales
|
11,200
|
11,200
|
11,200
|
|
61,696
|
61,384
|
62,464/
|
|
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)
|