Salem Telephone Case

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Salem Telephone Case

1) Which expenses are variable and which are fixed with respect to revenue hours?
VariableFixed
PowerRent
Hourly personnelCustodial Services
Sales promotionComputer leases
Corporate servicesMaintenance
Depreciation expenses - computer and office
Salaried employees
Systems development
Sales

2) For each expense that is variable, calculate the cost per revenue hour.
PowerPersonnelSales PromotionCorporate 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
January329
February316
March361
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 - intracompany205 @ $400Variable Expenses Detailed
Sales - commercial138 @ $800Power 1,612 1,417 1,807
Personnel 8,232 7,238 9,226
Sales Promotion 7,853 6,905 8,800
Contribution Incomes StatementCorp. Service 15,690 13,797 17,584
Salem Data ServicesTotal Variable 33,387 29,357 37,417
TotalPer 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...
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