# Using Fixed And Variable Costs Within The Report

Decent Essays

Exhibit 2 contains both fixed and variable costs within the report. Other costs we must look at is the opportunity of the purchased computer equipment, which has a value of roughly \$25,500. The leased computer equipment cannot be cancelled, thus we consider it a sunk cost and do not take it into consideration. Next, we 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 shut down PDS, PTC would have to pay the market rate for their data needs, which will increase this cost by two fold. Additional issues to take into consideration are the burdens 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 demonstrates the value of looking at PDS in depth to determine if more value exists than appears within the initial reports.

Digging deeper, the first number we examine is how many computer hours PDS has to sell to break even. We will assume the intercompany hours billed at \$400 will average 205 per month. The variable costs include power, parts of operation wages, and materials. Next, we calculate the unit contribution (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. Operations cost