Salem Telephone Case Summary

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
b) Reducing the price to commercial customers to $600/hour would increase demand by 30%. Sales - intracompany 205 @ $400 82,000 Per Unit Sales - commercial 179.4 @ $600 107,640 Sales 493 TOTAL 189,640 Variable Expenses 97 Total Sales Per Unit $493 Contribution Margin 396 Like the above example, you'd be decreasing sales price by 25% while increasing demand by 30%. Although this would increase the demand, the increase is not enough to raise sales to the level pre-change. However, at the same time, the increase in hours will increase the variable costs. Therefore, I would expect net income to drop again, only less than in the reverse