Salem Data Services fixed and variable expenses:

Variable Expenses: Equipment Costs: Power Wages and Salaries: Operations hourly personnel.
Fixed Expenses: Space Costs: Rent, Custodial Services Equipment Costs:Computer Leases, Maintenance, Depreciation of Computer Equipment, Depreciation of Office Equipment and Fixtures Wages and Salaries: Operations salaried staff, systems development and maintenance, administration and sales personnel Other: Promotion, Corporate Services

Variable Expenses per Revenue Hour

January
February
March
Power Expense
1,546
1,485
1,697
Hourly Personnel Expense
7,896
7,584
8,664

Revenue Hours
329
316
361

Power Expense per Revenue Hour
4.70
4.70
4.70
Hourly Personnel Expense per Revenue Hour
24
24
24
Total Variable Cost per Revenue Hour
28.70
28.70
28.70

Contribution Margin Income Statement Salem Data Services
Revenue
Intracompany Revenue 82,000 Commercial Revenue 110,400 Total Revenue $192,400
Variable Expenses 9,844
Contribution Margin $182,556
Fixed Costs 212,939
Net Income (30,383)

Break-Even Analysis

205(400) + X(800) = (X + 205) (28.7) + 212,939

X = 212,939 – 82,000 + 5,884 800 – 28.7

X = 177.39

• Estimate the effect on income of each of the options Flores has suggested if
Wu estimates as follows:

Original March: P = net income = ($23,700)

 Increasing the price to commercial customers to $1,000 per hour would reduce demand by 30%

P= 205(400)+1000(96.6)-301.6(28.7)-212,939 = -$42,994.92

 Reducing the price to commercial