Computer Equipment : Fixed Cost And Variable Cost

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Exhibit 2 has fixed cost and variable cost both in the report. Other cost we need to look it is the opportunity of the purchased computer equipment which has a value of around $25,500. The lease computer equipment is cannot be cancelled, so we consider it a sunk cost and do not take it into consideration. Next, we need to look at the purpose of creating PDS. The purpose was to help deregulate PTC and rescind the push through of a rate increase. If they shutdown PDS, PTC would have to pay market rate for their data needs which will increase this cost by two fold. Other Issues to take into consideration is the burden of finding alternate use for the space PDS is currently renting and the opportunity cost of wages being paid to the PDS employees. Can we invest the wage pay somewhere else for a higher return? Asking these questions suggest that there is value by looking into PDS a little deeper to see if more value is actually there than shown in the reports.

To dig deeper, the first number we need to know is how many computer hours PDS has to sale to break even. We will assume the intercompany hours billed at $400 will average 205 per month. There are a few variable costs, such as power, parts of operation wages, and materials. Next, we calculate the unit contribution, which is (sales – variable cost). The average cost for power is the total 3 month power cost divided by the total time computers were used during this time(total revenue plus service hours) or 5028/1110=$4.53.
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