Epsilon Services Inc.

Scenario: Service Cost and Profitability Analysis

Service Details:

• Service A:
  • Revenue: $200,000
  • Variable Costs: $80,000
  • Fixed Costs: $50,000

• Service B:
  • Revenue: $300,000
  • Variable Costs: $120,000
  • Fixed Costs: $70,000

Requirements:

1. Contribution Margin and Profitability Analysis:
   • Calculate the contribution margin per unit and contribution margin ratio for Service A and Service B at Epsilon Services Inc. Compare the profitability of each service and provide recommendations.

1. Break-Even and Sensitivity Analysis:
   • Perform a break-even analysis for Epsilon Services Inc., considering the combined contribution of Service A and Service B. Conduct a sensitivity analysis to explore the impact of revenue fluctuations on profitability.

1. Service Mix Optimization:
   • Determine the optimal service mix that maximizes Epsilon Services Inc.'s overall contribution margin. Justify your recommendation with quantitative analysis and strategic considerations.

1. Strategic Pricing and Market Positioning:
   • Recommend a pricing strategy for Service B to enhance its competitive position without sacrificing profitability. Discuss the implications of pricing decisions on market share and revenue growth.

1. Operational Efficiency Strategies:
   • Propose two operational efficiency strategies that Epsilon Services Inc. could implement to reduce variable costs and improve profit margins across both service lines.