Salem Telephone Company Case Study

James Whittle
Salem Telephone Company Case Study
9/29/2014

1.) The variable costs in Exhibit 2 are Power and Hourly Personnel Wages as the costs fluctuate from month to month and are driven by the revenue hours for the company. The fixed costs in Exhibit 2 are Rent, Custodial Services, Computer Equipment Leases, Computer Maintenance, Computer Depreciation, Office Equipment and Fixtures Depreciation, Salaried Staff Wages, Systems Development and Maintenance, Administrative Wages, Sales Wages, Sales Promotion, and Corporate Services. Rent, Custodial Services, Computer Equipment Leases, Computer Maintenance, Computer Depreciation, Office Equipment and Fixtures Depreciation, Salaried Staff Wages, Systems Development and Maintenance, Administrative Wages, and Sales Wages are all obviously fixed because the expenses do not vary monthly. However, Sales Promotion and Corporate Services expenses change monthly, but the change is not dependent on revenue hours. Therefore, they are fixed with respect to revenue hours.

2.) The calculations for variable costs with respect to revenue hours are as follows:

January
February
March
Total Power Expense
$1,546
$1,485
$1,697
Total Revenue Hours
329
316
361
Total Variable Cost per Revenue Hour
$4.70
$4.70
$4.70

January
February
March
Total Hourly Personnel Wages Expense
$7,896
$7,584
$8,664
Total Revenue Hours
329
316
361
Total Variable Cost per Revenue Hour
$24.00
$24.00
$24.00

The total expense for both Power and Hourly Personnel Wages was divided by the total revenue hours.

3.)

March
(343 Revenue Hours)
Sales Revenues:

Intracompany sales ($400/hour IntCo.) $82,000
Commercial Sales ($800/hour Comm.) $110,400
Total Sales Revenue $192,400
Variable Costs:

Power ($4.70/hour) $(1,612.10)
Hourly Personnel Wages ($24/hour) $(8,232.00)
Total Varible Cost $(9,844.10)
Contribution Margin $182,555.90
Fixed Costs:

Rent $(8,000)