Salem Telephone Case
Essay by 24 • December 26, 2010 • 599 Words (3 Pages) • 3,819 Views
Salem Telephone Case
1) Which expenses are variable and which are fixed with respect to revenue hours?
Variable Fixed
Power Rent
Hourly personnel Custodial Services
Sales promotion Computer leases
Corporate services Maintenance
Depreciation expenses - computer and office
Salaried employees
Systems development
Sales
2) For each expense that is variable, calculate the cost per revenue hour.
Power Personnel Sales Promotion Corporate Services
January 1,546 7,896 7,909 15,424
February 1,485 7,584 7,039 15,359
March 1,697 8,664 8,083 15,236
Total 4,728 24,144 23,031 46,019
Revenue Hours
January 329
February 316
March 361
Total 1,006
Total Cost/Hour 4.70 24.00 22.89 45.74
3) Create a contribution margin income statement for Salem Data Services. Assume that intra company usage is 205 hours. Assume commercial usage is at the March level.
Sales - intracompany 205 @ $400 Variable Expenses Detailed
Sales - commercial 138 @ $800 Power 1,612 1,417 1,807
Personnel 8,232 7,238 9,226
Sales Promotion 7,853 6,905 8,800
Contribution Incomes Statement Corp. Service 15,690 13,797 17,584
Salem Data Services Total Variable 33,387 29,357 37,417
Total Per Unit
Sales (343) 192,400 561
Variable Expenses 33,387 97
Contribution Margin 159,013 464
Fixed Expenses 189,620
Net Operating Income (30,607)
4) Assuming the intracompany demand for service will average 205 hours per month, what level of commercial revenue hours of computer use would be necessary to break even each month?
Fixed expenses = 189,620
Per unit CM = 464
Units to break even = 409
5) Estimate the impact on income of each of the options Flores has suggested if Wu estimates as follows:
a) Increasing the price to commercial customers to $1,000 per hour but reduce demand by 30%
Sales - intracompany 205 @ $400 82,000 Per Unit
Sales - commercial 96.6 @ $1,000 96,600 Sales 592
TOTAL 178,600 Variable Expenses 97
Total Sales Per Unit $592 Contribution Margin 495
Although this change will undoubtedly improve the individual contribution
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