Salem Telephone Company-Case Study Peter Flores‚ President of Salem Telephone Company‚ believes that a computer subsidiary company (Salem Data Services) appears to be unprofitable. And because of this‚ he must decide and determine whether it is actually unprofitable and consider whether changes in prices or promotion might improve profitability by using the Break-Even point analysis. But before we come out to any solutions‚ we must discuss Salem Data Services accounting report
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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? Expenses Spase costs: Rent Fixed cost1 Custodial services Fixed cost2 Equipment costs Computer leases Fixed cost3 Maintenance Fixed cost4 Depreciation: Computer equipment Fixed cost5 Office equipment and fixtures Fixed cost5 Power Variable cost6 Wages and salaries
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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? A) Variable with respect to revenue hours Hourly personnel Salaries expense Power Expense B) Fixed expenses with respect to revenue hours: Rent Custodial services Computer leases Maintenance Depreciation of computer equipment‚ office equipment and fixtures
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maintenance - Administration - Sales - Sales promotion - Corporate services 2.) VARIABLE EXPENSES: COST/HOUR JAN. FEB. MAR. Power: 4.7 4.7 4.7 Operations (hourly personnel): 24 24 24 TOTAL: 28.7 28.7 28.7 3.) CONTRIBUTION MARGIN INCOME STATEMENT SALES/REVENUE Intracompany: 205 hrs * $400/hr = $82‚000 Commercial: 138 hrs * $800/hr = $110‚400 Total: 343 hrs $192‚400 VARIABLE EXPENSES Power: $4.7/hr * 343 hrs = $1‚612.10 Operations (hourly personnel):
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Introduction Peter Flores‚ president of Salem Telephone Company (STC) informed the Public Service Commission “that a profitable computer service Subsidiary would reduce pressure for the telephone rate increase.” And a result‚ Salem Data Services (SDS) was established. In 2003‚ SDS has “yet to experience a profitable month” and this induced the meeting between Peter Flores and Cynthia Wu‚ manager of SDS in April 2004. Flores and Wu held different views in regards to SDS; Flores felt SDS was draining
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SALEM TELEPHONE COMPANY Professor William J. Bruns‚ Jr. & Julie Hertenstein Introduction Accounting is not always a black or white subject; there are many variables to consider when making a business decision. Looking past the numbers and being able to look at the larger picture will determine whether you will be an average manager or a great manager. Background Facing declining profits‚ Salem Telephone Company (STC) is evaluating the future of its subsidiary‚ Salem Data
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Winning Hearts and Minds in War of Plagiarism Summary In Scott Jaschiks’ book titled “Winning Hearts and Minds in War on Plagiarism‚” Jaschik describes the issue of first-year English students plagiarizing work and the numerous faculty members’ solutions to solve plagiarizing. Teachers‚ like North Carolina State University professor Kate Hagopian‚ are working with first-year English students to teach students academic integrity and to understand why students plagiarize. Teachers have
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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? a. Variable Expenses – Wages for Hourly Personnel‚ Power b. Fixed Expenses – Wages for Salaried staff‚ Systems development and maintenance‚ Administration 2. For each expense that is variable with respect to revenue hours‚ calculate the cost per revenue hour. 3. Create a contribution margin income statement
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Salem Telephone Company 1. With respect to the revenue hours the expenses‚ power and operations: hourly personnel are the variable expenses. Rent‚ custodial services‚ Computer leases‚ Maintenance‚ Depreciation‚ Salaried staff‚ administration‚ sales‚ sales promotions‚ corporate services and systems development and maintenance expenses can be treated as fixed costs. 2. Costs per revenue hours for the Variable expenses power and operations hourly personnel are as follows Expenses | Jan
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HBS case – Salem Telephone Company Opening In 2000 the Public Service Commission (PSC) was informed by the president of Salem Telephone Company (STC) that a profitable computer service subsidiary would reduce pressure for increases to telephone rates. With approval from the Public Service Commission‚ STC‚ a regulated public utility‚ established Salem Data Services (SDS) in 2001‚ an unregulated public utility to perform data processing for the telephone company and additionally to sell computer
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