Salem Telephone Case Study

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Salem Telephone Company Case Study
1. Variable Expenses with respect to revenue hours: Power expense, hourly personnel salaries expense. Fixed expenses with respect to revenue hours: Rent, custodial services, computer leases, maintenance, depreciation of computer equipment and office equipment and fixtures, operations salaried staff, systems development and maintenance, administration, and 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
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The expenses that are affected by revenue hours will therefore be variable expenses and those that are not will be fixed expenses. The expenses affected by revenue hours are power and wages/salaries of hourly personnel. All remaining expenses are not affected by revenue hours. Variable are: ‡ Equipment costs: power - variable cost due to the fact that there is a direct connection between computer utilization, which is increasing with the number of hours sold, and energy consumed. Wages and salaries: operations hourly personnel ± salaries paid based on actual number of worked hours. Fixed are: ‡ Space costs: 1. Rent ± fixed cost because it is paid to STC independent of how many hours they are selling. 2. Custodial services - fixed cost because they depend on STC¶s estimated annual cost per square foot and are paid independent of revenues. ‡

‡ Equipment costs: 1. Computer leases - fixed cost due to the fact that normally they were purchased before the business starts so they are independent from the revenue. 2. Maintenance - fixed cost because the inventory has to always to be controlled independent sell hours or revenue. 3. Depreciation fixed cost because the value of the asset is adjusted or reduced over a specified number of years that the equipment is being used or over the asset¶s useful life. ‡ Computer equipment ± fixed cost as indicated Office equipment and fixtures ± fixed cost
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