The Prestige Telephone Company 2- Assume that the total expenses are around the average of $ 231,000. (By observing first three months’ results) If the total expenses are $ 231,000 than the total revenue should be $ 231,000 at the Break-Even Point. On the other hand if the company demand for service will be 205 hours , which means company sales revenue will be $ 82,000 (as the Public Service Commission’s restrictions says), and the other revenues in the commercial sales assume that around $ 10,000. So the revenue from the computer use should be ; 231,000 – 92,000 (82,000 + 10,000) = $ 139,000

The computer use were billed at $ 800, than the level of computer use in hourly; 139,000 / 800 = 173,75 ? 174 hours 3- a) Assume that the average commercial customers demand is 131 hours ((123 + 135 + 138) / 3) for the current situation and the total revenue is; (131 h x $ 800) + (205 h x $ 400) + $ 10,000 = 196,800 (205 h for company demand and $ 10,000 for other revenues from commercial sales) If we assume that the total expenses are around the average of $ 231,000, than the net income is; $ 196,800 – $ 231,000 = ($ 34,200) For the new situation, the commercial use demand is; 131 h % 70 = 91,7 ? 2 h So the total revenue is; (92 h x $ 1,000) + (205 h x $ 400) + $ 10,000 = $ 184,000 (205 h for company demand and $ 10,000 for other revenues from commercial sales) If we assume that the total expenses are around the average of $ 231,000, than the net income is; $ 184,000 – $ 231,000 = ($ 47,000) In the result increasing the price for commercial customers $ 1,000 which means the commercial demands will reduce by % 30, the net income will reduce by % 27,23. b) As the previous question, if we assume the same amount of commercial sales for current situation, the net income is $ 34,200. 205 h for company demand and $ 10,000 for other revenues from commercial sales) For the new situation the commercial use demand is; 131 h % 130 = 170,3 ? 171 h So the total revenue is; (171 h x $ 600) + (205 h x $ 400) + $ 10,000 = $ 194,600 (205 h for company demand and $ 10,000 for other revenues from commercial sales) If we assume that the total expenses are around the average of $ 231,000, than the net income is; $ 194,600 – $ 231,000 = ($ 36,400) In the result increasing the price for commercial customers $ 600 which means the commercial demands will increase by % 30, the net income will reduce by % 6,04.