Salem Telephone

Salem Telephone Case Study This case study entails a telephone company and a subsidiary computer data service company called Salem Data Service. The Salem Data Service Company has been reporting losses since its start in 2000. There was pressure for Peter Flores, the president of Salem Telephone Company, to do something about the losses coming from their subsidiary company. There were a few questions in the case that arose for Peter Flores to consider. The first question to answer in the case study is to identify which expenses in Exhibit 2 are variable, and which expenses are fixed with respect to revenue hours. We came up with the answer to this question quickly. We remembered the definitions of variable and fixed costs plus going over it so many times in class. The definition of a variable cost is a cost that changes in direct proportion to changes in the cost-driver level. Variable costs that we found in the case were power, the hourly personnel, and corporate services. All those examples were examples of costs that were a direct proportion to changes in the cost-driver level. The definition of a fixed cost is a cost that is not immediately affected by changes in the cost-driver level. Our question 1 sheet gives many examples of the fixed cost that we found in the case. Some examples of costs that do not change from month to month are the rent and salaried staff. Our last expense that needed to be defined in question one was sales promotion. As per our note on the question one sheet, sales promotion is neither a variable nor a fixed cost. The dollar amount in sales promotion is not related to current level of work, but more of the manager’s estimation. This cost is an unallocated cost. The second question in the case is in regards to each expense that is variable with respect to revenue hours. If you look at question 2 in our report, we have calculated the variable expenses with respect to revenue hour. Power ends up being $4.70 an hour. Hourly Personnel cost...