Salem Telephone Case

995 Words Mar 1st, 2014 4 Pages
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 revenue hours, calculate the cost per revenue hour.
a. Wages of hourly personnel
Total wages of hourly personnel/total revenue hours = cost per revenue hour
i. January: 7896/329 = $24 per revenue hour ii. Februrary: 7584/316 = $24 per revenue hour
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Increased promotion would increase revenue hours by up to 30%. Wu is unsure how much promotion this would take. (How much could be spent and still leave Salem Data Services with no reported loss each month if commercial hours were increased by 30%).

January February March
Sales $ 235,040 $ 234,520 $ 259,480
Total Variable Costs $ 10,501 $ 10,232 $ 11,549
Contribution Margin $ 224,539 $ 224,288 $ 247,931
Total Fixed Costs $ 212,939 $ 212,939 $ 212,939
Net Operating Income $ 11,600 $ 11,349 $ 34,992

January
Intercompany Sales =
Commercial Sales =
Variable Expenses =
Contribution Margin =
New Operating Income =

February
Intercompany Sales =
Commercial Sales =
Variable Expenses =
Contribution Margin =
New Operating Income =

March
Intercompany Sales =
Commercial Sales =
Variable

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