Managerial Accounting

Q1 “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 costs : Power (classified under Equipment costs) and hourly personnel (classified under Operation costs) are variable.

Fixed costs: All other costs that are listed in the Exhibit 2 are fixed costs.

Q2 For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour.

MonthExpense | January | February | March |

(A) Power | 1,546 | 1,485 | 1,697 |

(B) Operations: hourly personnel | 7,896 | 7,584 | 8,664 |

Total Variable Costs (A + B) | 9,442 | 9,069 | 10,361 |

(C) Total revenue hours | 329 | 316 | 361 |

Cost per revenue hour (A+B)/C | 28.70 | 28.70 | 28.70 |

Q3 Create a contribution margin income statement for Salem Data Services. Assume that intra-company usage is 205 hours. Assume commercial usage is at the March level.

Revenues | |

Intra-company | 82000 |

Commercial | 110400 |

Total Revenue | 192,400 |

Variable Expenses | 9844 |

Contribution Margin | 182,556 |

Fixed Expenses | |

Rent | 8000 |

Custodial Services | 1240 |

Computer leases | 95000 |

Maintenance | 5400 |

Depreciation | 26180 |

Salaried staff | 21600 |

System Development | 12000 |

Administration | 9000 |

Sales | 11200 |

Sales Promotion | 8083 |

Corporate services | 15236 |

Total fixed expenses | 212,939 |

Net Income | (30,383) |

| |

Q4 Assuming that intra-company demand for service will average 205 hours per month, what level of commercial revenue hours of computer use would be necessary to break even each month?

Since break- even occurs when revenue = costs

Revenue = Variable costs + Fixed cost

205*400+X*800=(X+205)*(28.7)+212939

X=177.39

It will take 177.39 commercial revenue hours to break-even

Q5 Estimate the effect on income of each of the options Flores has suggested...