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Essay on Salem Case Study

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Case Summary Salem Telephone Company, a regulated utility, received permission from the state Public Service Commission to establish Salem Data Services. Salem Data Services would provide data processing services for the telephone company as well as outside companies. Unlike Salem Telephone, Salem Data Services would not be a regulated utility and would be considered a separate entity. While the intention would be that the profit from Salem Data would ease pressures to raise telephone prices, the company had yet to produce a single profitable month. Finally, a meeting took place between Salem Telephone President and the manager of Salem Data Services to discuss the future of Salem Data Services (Bruns & Hertenstein, 2005).
Case Tasks …show more content…

d staff, Systems Development and Maintenance, Administration, Sales, Sales Promotion, Corporate Services
Cost Per Revenue Hour
Cost per revenue hour was determined by dividing the quarterly average of variable expenses by the quarterly average of revenue hours:
Average Power Expense for the quarter $ 1,576.00
Average Hourly Salary for the quarter $ 8,048.00
Total Variable Expenses $ 9,624.00
Average Number of Revenue Hours 335.33
Cost per Revenue Hour (Total Variable costs/number of hours) $ 28.70

Contribution Margin Income Statement for Salem Data Services
A Contribution Margin Income Statement was prepared with the following assumptions: Intracompany use was 205 hours and Commercial use was at March levels (138 hours)
Salem Data Services Contribution Margin Income Statement Intracompany (205 Revenue hours @ $400/hr) $82,000
Commercial (138 Revenue hours @ $800/hr) $110,400
Total Sales $192,400.00 Less Variable Costs
Total Revenue hours 343
Variable Cost per hour X revenue hours $28.70 $9,844.10
Contribution Margin for intracompany and commercial $182,555.90
Contribution Margin Ratio for Intracompany 0.9283
Contribution Margin Ratio for commercial 0.9641
Less Fixed

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