Salem telephone case Essay

Submitted By sunny19951130
Words: 992
Pages: 4

Salem Telephone Company

Jiaoyang Li 2014.09.28


1.Operations: hourly personnel and power are variable with respect to revenue hours. Space costs (Rent, Custodial services), Equipment costs (Computer leases, Maintenance, Depreciation), Operations for salaried staff, Systems development and maintenance, Administration, Sales, Sales promotion and corporate services are all fixed with respect to revenue hours. 2.Cost per revenue hour= Costs/Revenue hours Operations: hourly personnel: January: 7896/329=$24/h February: 7584/316=$24/h
March: 8664/361=$24/h
January: 1546/329=4.69908=$4.7/h February: 1485/316=4.6993=$4.7/h March: 1697/361=4.7/h
Total variable cost per hour: January, February, March = 24+4.7=$28.7/h

3. Contribution Margin Income Statement Salem Data Services at March Sale revenues Intra company sales ($400*205) $82,000 Commercial sales ($800*138) $110,400 Total Revenue $192,400
Variable Cost Operations: hourly personnel ($24*343) ($ 8,232) Power ($4.7*343) ($1,612.1) Total Variable cost ($9,844.1)
Contribution Margin $182,555.9
Fixed Cost Rent ($ 8,000) Custodial Services ($ 1,240) Computer leases ($ 95,000) Maintenance ($ 5,400) Depreciation Computer equipment ($ 25,500) Depreciation office equipment and fixtures ($ 680) Operations: salaried stuff ($ 21,600) Systems development and maintenance ($ 12,000) Administration ($ 9,000) Sales ($ 11,200)
Sales promotion ($ 8,083)
Corporate services ($ 15,236) Total Fixed Cost ($ 212,939)
Net Income ($30,383.1)
First, I calculate the portion that the intracompany sales cover of the fixed cost. Sales revenue per unit: $400 Variable Cost per unit: $28.7 Intracompany sales: ($400*205) $82,000 Variable cost: ($28.7*205) ($5883.5) Contribution Margin $76116.5
Total fixed cost is $212,939
So the rest of the fixed cost is covered by commercial sales, which is
Then, contribution Margin per unit for commercial sales is, Commercial sales per hour-variable cost per hour=800-28.7=771.3
So, the average commercial revenue hour of computer use is fixed cost/ contribution margin per hour. Which is 136822.5/771.3=177.47 hours
177.47 units of commercial revenue hours are necessary to reach break-even.

a) If I reduce demand by 30%, and increase price of commercial sale to 1000 Revenue hour of intracompany is still 223 and revenue hour for commercial is reduced to 97(138*0.7), total revenue hour is 320.
Assuming the following cost structure, intracompany price per hour is