Prestige Telephone

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 provided Estimated changes January February March January February March
Revenue hours
Commercial 123 135 138 86 95 97 30% drop in sales
Total revenue hours 329 316 361 292 276 320
Available hours 175 188 167 212 228 208 idle time increased
Total hours 536 536 568 536 536 568 Remain constant
Revenues:
Commercial Sales: Computer use 98,400 108,000 110,400 86,100 94,500 96,600 Revenue under new hourly rate Other 9,241 9,184 12,685 9,241 9,184 12,685 Remain constant Total revenue 190,041 189,584 212,285 177,741 176,084 198,485 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: Power 1,633 1,592 1,803 1,527 1,479 1,686 Variables cost
Total Equipment cost 128,213 128,172 128,383 128,107 128,059 128,266 Fixed cost
Wages and salaries: Operations 29,496 29,184 30,264 27,587 27,106 28,297 Variables cost
Total Staff cost 61,696 61,384 62,464 59,787 59,306 60,497
Materials 9,031 8,731 10,317 8,446 8,109 9,646 Variables cost Total expenses 231,513 229,925 233,723 228,914 227,112 230,968
Net income (loss) (41,472) (40,341) (21,438) (51,173) (51,028) (32,483) (31,432) worser Sum of fixed cost 191,353 190,418 191,339 191,353