1.) When determining which expenses should be considered as fixed or variable expenses it is important to remember that the expenses are based on revenue hours. That being said the only two expenses that are directly affected by revenue hours are, power and Operations: hourly personnel wages. Therefore, Power and Operations: hourly personnel wages are the only variable costs and the rest of the expenses incurred by SDS are to be considered as fixed. (See Exhibit 1)
2.) When calculating the cost per revenue hour for the variable expenses you need to use the variable expenses for each month, as well as the revenue hours for each month. By dividing the total variable costs by the total revenue hours I was able to calculate the variable costs per revenue hour, which ended up being $28.70. (See Exhibit 2)
3.) When putting together a contribution margin income statement it is essential to follow the proper format. When I was finding the revenue I needed to find the sales amount per hour. Which came out to be $400/hr for intracompany sales and $800/hr for commercial sales. To find the intracompany revenue I found the product of $400 (Intracompany sales per hour) and 205 (given hours of usage) which gave me $82,000 for intracompany revemue. To find commercial revenue I found the product of $800 (commercial sales per hour) and 138 (commercial hours of usage for March) which gave me $110,400 for commercial revenue. After finding that, I subtracted the total variable expenses to find the contribution margin which was $182,556. Next, I subtracted the total fixed expenses from the contribution margin which gave me a net income of -$30,383. (See Exhibit 3)
4.) The break even point is the point where total revenue equals total costs. To find t ...