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Salem Telecommunications Case

In: Business and Management

Submitted By anouki
Words 495
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1.“Revenue hours” represent the key activity that drives costs at Salem Data Services. Which expenses in Exhibit 2 are variable with respect to revenue hours? Which expenses are fixed with respect to revenue hours?

We think that Variable Expenses considering the revenue hours as driver are:




hourly personnel salaries expense
Power Expense

Fixed expenses with respect to revenue hours:
Rent
custodial services computer leases
Maintenance
depreciation of computer equipment, office equipment and fixtures operations salaried staff systems development and maintenance administration and sales sales promotion and corporate services

2.For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour.

Power
Hourly Personnel
Salaries
Overall Cost

January
1546/329=4.7
7896/329=24

=24+4.7=28.7

February
1485/316=4.7
7584/316=24

=4.7+24=28.7

March
1697/361=4.7
8664/361=24

=24+4.7=28.7

3. Create a contribution margin income statement for Salem Data Services, Assume that intracompany usage is 205 hours, Assume commercial usage is at the March Level.

Revenue
Variable costs
Contribution Margin

Fixed Costs
Operating Income (loss)

From the case we know that intracompany work was billed at $400 per hour, and commercial sales were billed at $800 per hour.

Commercial
138*800=110400
138*28.7=3960.6
(800-28.7)*138=
106439.4
-----------
106439.4

Intracompany
205*400=82000
205*28.7=5883.5
(400-28.7)*205=
76116.5
---------
76116.5

Overall
192400
9844.1
182555.9

212939
(30383.1)

4. Assuming the intracompany demand for service will average 205 hours per month, what level of commercial revenue hours of computer use would be necessary to break even?

Break even formula follows: Revenue = Variable Costs + Fixed Costs

205*400 + X *800 =(X+205) *28.7…...

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