Prestige Telephone

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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 %. Ans : -

It is common to business manager in a business unit to adjust different variables (fixed cost, variable cost and price strategy) to maximize the bottom-line or top-line to either maximize profit or minimize the operation cost. Provided the data as below, 3 variable costs indentified, they are power, operations, material. They are proportional to the revenue intake.  Data providedEstimated changes

 January February March January February March Revenue hours 
Commercial123 135 138 86 95 97 30% drop in sales
Total revenue hours329 316 361 292 276 320
Available hours175 188 167 212 228 208 idle time increased Total hours536 536 568 536 536 568 Remain constant
Revenues: 
Commercial Sales: 
Computer use98,400 108,000 110,400 86,100 94,500 96,600 Revenue under new hourly rate Other9,241 9,184 12,685 9,241 9,184 12,685 Remain constant Total revenue190,041 189,584 212,285 177,741 176,084 198,485 1st Q decreased $39,600 Expenses 

Total space costs:9,240 9,240 9,240 9,240 9,240 9,240 Fixed cost Equipment costs:      
Power1,633 1,592 1,803 1,527 1,479 1,686 Variables cost Total Equipment cost128,213 128,172 128,383 128,107 128,059 128,266 Fixed cost Wages and salaries:      
Operations29,496 29,184 30,264 27,587 27,106 28,297 Variables cost Total Staff cost61,696 61,384 62,464 59,787 59,306 60,497 Materials9,031 8,731 10,317 8,446 8,109 9,646 Variables cost Total expenses231,513 229,925 233,723 228,914 227,112 230,968 Net income (loss)(41,472)(40,341)(21,438)(51,173)(51,028)(32,483)(31,432)worser

Sum of fixed cost191,353 190,418 191,339 191,353 190,418 191,339 Sum of variable cost40,160 39,507 42,384 37,561 36,694 39,629 Total cost231,513 229,925 233,723 228,914 227,112 230,968

A negative gain is result with a deficit in revenue of $39,600 and a further shortfall of $31,432 on income as compared in the first quarter. However, available hour is increased and can be redeployed to other high productivity item or reduce headcount with flexible working schedule to meet peak hour pattern. Of those fixed cost likes space, rent, equipment, administration expenses is remain unchanged. For example, an increase in taxi fare per kilo may not able to increase the income of the taxi-driver, which may return lower their income if the fixed cost, likes car rental cost and license fee is remain unchanged but high variable cost on gasoline.

(b) Reducing the price to commercial customers to $600 per hour would increase demand by 30 percent
 Data providedEstimated changes
 January February March January February March Revenue hours 
Commercial123 135 138 160 176 179 30% up in sales
Total revenue hours329 316 361 366 357 402
Available hours175 188 167 138 148 126 idle time increased Total hours536 536 568 536 536 568 Remain constant
Revenues: 
Commercial Sales: 
Computer use98,400 108,000 110,400 95,940 105,300 107,640 Revenue under new hourly rate Other9,241 9,184 12,685 9,241 9,184 12,685 Remain constant Total revenue190,041 189,584 212,285 187,581 186,884 209,525 1st Q decreased $7,920 Expenses 

Total space costs:9,240 9,240 9,240 9,240 9,240 9,240 Fixed cost Equipment costs:      
Power1,633 1,592 1,803 1,612 1,569 1,780 Variables cost Total Equipment cost128,213 128,172 128,383 128,192 128,149 128,360 Fixed cost Wages and salaries:      
Operations29,496 29,184 30,264 29,114 28,768 29,871 Variables cost Total Staff cost61,696 61,384 62,464...
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