# Salem Telephone Company Case Analysis

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1.) VARIABLE EXPENSES
- Power
- Operations (hourly personnel) FIXED EXPENSES
- Rent
- Custodial services
- Computer leases
- Maintenance
- Depreciation
- Operations (salaried staff)
- Systems development and maintenance
- Sales
- Sales promotion
- Corporate services
2.)
VARIABLE EXPENSES: COST/HOUR JAN. FEB. MAR.
Power: 4.7 4.7 4.7
Operations (hourly personnel): 24 24 24
TOTAL: 28.7 28.7 28.7
3.)
CONTRIBUTION MARGIN INCOME STATEMENT SALES/REVENUE
Intracompany: 205 hrs * \$400/hr = \$82,000 Commercial: 138 hrs * \$800/hr = \$110,400 Total: 343 hrs \$192,400 VARIABLE EXPENSES Power: \$4.7/hr * 343 hrs = \$1,612.10 Operations (hourly personnel): \$24/hr * 343 hrs = \$8,232.00 Total: \$9,844.10 FIXED EXPENSES
- Rent \$8,000
- Custodial services \$1,240
- Computer leases \$95,000
- Maintenance \$5,400
- Depreciation \$26,180
- Operations (salaried staff) \$21,600
- Systems development and maintenance \$12,000
- Sales \$11,200
- Sales promotion \$8,083
- Corporate services \$15,236
TOTAL: \$212,939

Sales \$192,400 Variable Expenses (\$9,844.10) Contribution Margin \$182,555.90 Fixed Expenses (\$212,939) Net Profit/Loss (\$30,383.10)
4.)
BREAK-EVEN Intracompany (revenue): 205 hrs * \$400/hr = \$82,000
- Variable Expenses: 205 hrs * 28.7/hr = \$5,883.50
- Contribution Margin: \$76,116.50

Total Fixed Cost: \$212,939
Contribution Margin: (\$76,116.50)
“Remaining”: \$136,822.50 136,822.50 / (800 – 28.7) = 177 units (Break-Even)

5.) A) Commercial = \$1,000/hr , 30% demand decrease Intracompany: 223 hrs * \$400/hr = \$89,200 Commercial: 97 hrs * \$1,000/hr = \$97,000 Total: 320 hrs \$186,200 Variable Exp: 320 hrs * 28.7/hr = \$9,184

Sales \$186,200 Variable Expenses (\$9,184) Contribution Margin \$177,016 Fixed Expenses

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