Variable Expenses with respect to revenue hours:
Power expense, hourly personnel salaries expense.
Fixed expenses with respect to revenue hours:
Rent, custodial services, computer leases, maintenance, depreciation of computer equipment and office equipment and fixtures, operations salaried staff, systems development and maintenance, administration, and sales, sales promotions, corporate services. 2.
Units: dollars per hour
personnel salaries expense
Total Variable cost per revenue hour
Income statement for Salem Data Services
From the article, I know that intracompany work was billed at $400 per hour, and commercial sales were billed at $800 per hour. So, intracompany contribution margin: $400-$28.7= $371.3/hr
Commercial contribution margin: $800-$28.7=$771.3/hr
Revenue = Variable Costs + Fixed Costs
205(400) + X (800) =(X+205) (28.7) +212,939
X= 177.39 commercial hours sold to break-even
P= Net Income= ($23,700)
For option 1:
P=205(400)+1000(96.6)-301.6(28.7) -212,939= -42,994.92
For option 2:
P=205(400) +600(179.4)-384.4(28.7) -212,939= -34,331.28
For option 3:
P=205(400) +800(179.4)-384.4(28.7) -212,939 = 1548.72
In conclusion, for option1 and 2, both will decrease in net income. For option3, net income will increase to a benefit amount. However, if the promotion expense is equal to or less than 1548.72, this option should be taken consideration. 6.
Based on my analysis above, Salem Data Services is a problem to Salem Telephone Company. Firstly, Flores should consider the promotion can be the turning point or not. Then decide if he will abort this service. For my consideration, I will recommend Flores to abort this unprofitable service.
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