Re: Salem Telephone Company‚ Salem Data Services Accounting Analysis Salem Telephone Company recently established Salem Date Services‚ a computer service subsidiary of the telephone company. The new subsidiary was established in efforts to earn the company increased revenues in order to relieve pressure to increase rates for the regulated telephone company. Salem Data Services accounting has shown profit loss for the subsidiary over the past three months. Peter Flores‚ president of Salem Telephone
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office equipment and fixtures are the only variable cost with respect to revenue hours. All other costs are fixed with respect to revenue hours. With higher fixed cost‚ Salem Data Services has a higher leverage and is therefore riskier. 2. ($7‚896 + $1‚546) / 329 hours = $28.70 / hour. For every hour spent working‚ the company spends 28.70 dollars. 3. Intracompany Commercial Total Number of Hours (a): 205 138 343 Revenue (a x b): $82‚000 $110‚400 $192‚400 Variable Costs (a x
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Case Study #1. Salem Telephone Company 1. Variable expenses: Power (the more hours sold‚ the more energy consumed) The hourly personnel (operations) works only when the computers are in operation Fixed expenses: The rent has to be paid despite any level of production ($8‚000 monthly) The custodial services depend on Salem Telephone’s estimated space‚ they are independent from the revenue of the Company The computer leases were acquired to run the business (before it was actually started
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sales‚ sales promotions‚ corporate services. 2. Units: dollars per hour January February March Power expense 4.7 4.7 4.7 personnel salaries expense 24 24 24 Total Variable cost per revenue hour 28.7 28.7 28.7 3. 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
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1.) VARIABLE EXPENSES - Power - Operations (hourly personnel) FIXED EXPENSES - Rent - Custodial services - Computer leases - Maintenance - Depreciation - Operations (salaried staff) - Systems development and 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
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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
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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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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? Variable: Wages of hourly personnel‚ Power Fixed: Rent‚ custodial services‚ computer leases‚ maintenance‚ depreciation‚ salaried staff wages‚ administration‚ sales‚ systems development‚ sales promotion‚ corporate services 2.) For each expense that is variable with respect to
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Turkesa Bullock BUS 5431 Managerial Accounting January 31‚ 2013 Salem Telephone Company Harvard Case Study Recommendation: The two suggestions by Flores: 1. Use pricing strategy to increase commercial revenue hours * This method will not add extra costs. However‚ according to our estimation above‚ changing price to either $1000 (97 hours) or $600 (180 hours) cannot prevent a net loss. 2. Increase sales promotion cost to win more business but the price unchanged *
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suggestion to close SDS instead of keeping it. However‚ if they close SDS‚ the change in their net income will be: Exhibit 5 They will save costs in maintenance‚ power‚ and so on‚ but they will lose the rent profit $8‚000 if there is no other company rents that floor. Besides‚ they need to outsource and the outsourcing cost will be 205 hours * $800 per hour = $164‚000. Therefore‚ as it is shown in Exhibit 5‚ their extra cost of closing SDS will be $94‚356. If they don’t rent the place to other
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