Salem Telephone Company Case Study

Topics: Variable cost, Costs, Management accounting Pages: 2 (257 words) Published: March 11, 2014
1. Operations wages for hourly personnel and office equipment and fixtures are the only variable cost with respect to revenue hours. All other costs are fixed with respect to revenue hours. With higher fixed cost, Salem Data Services has a higher leverage and is therefore riskier. 2. ($7,896 + $1,546) / 329 hours = $28.70 / hour. For every hour spent working, the company spends 28.70 dollars. 3. IntracompanyCommercialTotal

Number of Hours (a):205138343
Revenue (a x b):$82,000$110,400$192,400
Variable Costs (a x c):($5,883.50)($3,960.60)($9,844.10) Contribution Margin:$76,116.50$106,439.40$182,555.90
Fixed Costs:($212,939)
Net Income:($30,383.10)
4. Commercial fixed cost = total fixed cost – intracompany fixed cost CFX = $212,939 – (76,116.50) = $136,822.50
(SP/unit * # of units sold) = (VC/unit * # of units sold) + FC $800x = $28.70x + $136,822.50
$771.3x = $136,822.50x= 177.39 hours
5. Increase price to $1000IntracompanyCommercialTotal
Number of Hours (a):20596.6301.6
Revenue (a x b):$82,000$96,600$178,600
Variable Costs (a x c):($5,883.50)($3,960.60)($9,844.10) Contribution Margin:$76,116.50$92,639.40$168,755.90
Fixed Costs:($212,939)
Net Income:($44,183.10)
Decrease price to $600IntracompanyCommercialTotal
Number of Hours (a):205179.4384.4
Revenue (a x b):$82,000$107,640$189,640
Variable Costs (a x c):($5,883.50)($3,960.60)($9,844.10) Contribution Margin:$76,116.50$103,679.40$179,795.90
Fixed Costs:($212,939)
Net Income:($33,143.10)
Increase promotionIntracompanyCommercialTotal
Number of Hours (a):205179.4834.4
Revenue (a x b):$82,000$143,520$225,520
Variable Costs (a x c):($5,883.50)($3,960.60)($9,844.10) Contribution Margin:$76,116.50$139,559.40$215,675.90
Fixed Costs:($212,939)
Net Income:$2,736.90
Salem Data Services can...
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