Salem Telephone Case Solution for Hbr Case. 9 Point Case Analysis.

SALEM TELEPHONE 1) Decision Makers Peter Flores Cynthia Wu 2) Issues and Problems A. Equipment Deliveries Delayed B. Higher Salaries than expected C. Customers harder to find than expected D. 2003 was lowest ROI in 7 years E. Hours available for sale, but are not providing revenue are high 3) Alternatives A. STC can pay market rate for their own computer services B. Put sales staff on commission only C. Stop mixing company accounts so they know where both companies really stand D. Spend more $ on advertising E. Increase prices F. Decrease prices G. Increase sales 4) Decision Criteria More Increase Decrease Increase Option A Advertising Option B Prices Option C Prices Option D Sales Weighted Score Weighted Score Weighted Score Weighted Criteria Weight Score Profitability 40% 3 1.2 2 0.8 1 0.4 3 1.2 Cost Savings 30% 1 0.3 2 0.6 2 0.6 2 0.6 Sustainability 10% 1 0.1 1 0.1 1 0.1 1 0.1 Customer Satisfaction 20% 1 0.2 1 0.2 3 0.6 2 0.4 Total 1.8 1.7 1.7 2.3

5) Analysis

1) Which expenses in Exhibit 2 are variable with respect to revenue hours? Which expenses are fixed with respect to revenue hours?

Variable

Fixed

Computer leases, maintenance, depreciation of computer and office equipment and fixtures Equipment Power Operations: salaried staff, systems development and maintenance, administration and Wages and Salaries Operations: hourly personnel sales Space Costs rent, custodial services

2) For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour. Total Revenue Hours Power Hourly Personnel Variable Costs per Revenue Hour

January 329 1546 7896 28.70

February 316 1485 7584 28.70

March 361 1697 8664 28.70

3) Create a contribution margin income statement for Salem Data Services Assume that intra-company usage is 205 hrs. Assume commericial usage is at the March level. Company work billed per hour Commercial Sales billed per hour Intracompany contribution margin per hour(pvc) Commercial contribution...