Assume a variable cost of $28 per hour, commercial revenues of $800 per hour and fixed costs of $115,820. Also, assume actual utilization of 138 hours this is what is given in Exhibit 1 for March. (Please ignore any intercompany effects for this question).

a. What is the break even volume (hours)? b. Estimate the effect on income of each of the options Rowe has suggested if Bradley estimates as follows: i. Increasing the price to commercial customers to $1,000 per hours would reduce demand by 30%. ii. Reducing the price to commercial customers to $600 per hour would increase demand by 30%. iii. Reducing operations to 16 hours on weekdays and eight hours on Saturdays would result in a loss of 20% of commercial revenue hours. iv. If increased promotion would increase sales by 30%, how much can be spent each month without reducing income?

Exhibit1 Prestige Data Services Summary of Computer Utilization, First Quarter 2003 Revenue Hours Intercompany January February March 206 181 Commercial 138 Total revenue hours 329 Service hours Available hours 32 32 40 Total hours 584 544 Exhibit 2 Prestige Data Services Summary Results of Operations, First Quarter 2003 January February March Revenues $89,200 Intercompany sales Commercial sales $82,400 $72,400 98,400 9,241 $190,041 108,000 9,184 $189,584 110,400 12,685 S212,285 use Total revenue Expenses Space costs: Rent Custodial services $8,000 1,240 9,240 $8,000 1,240 9.240 $8,000 1,240 9,240 Equipment costs Computer leases Maintenance 95,000 95,000 5,400 95,000 5,400 Depreciation: 25,500 680 1,633 128,213 Computer equipment Office equipment and fixtures 25,500 680 1,592 128,172 25,500 680 1,803 128,383 Wages and salaries Operations Systems development and maintenance Administration Sales 29,496 12,000 9,000 11,200 61,696 9,031 7,909 15,424 $231,513 $(41,472) 29,184 12,000 9,000 11,200 61,384 8,731 7,039 15,359 $229,925 $(40,341) 30,264 12,000 9,000 11,200 62,464/ 10,317 8,083 15,236 $233,723 $(21,438) Materials Sales promotions Corporate services Total expenses Net income (loss)