Salem Telephone Products

Case Study

Salem Telephone Company Products

Timothy Bower

ACC6140

Dr. John Knight

February 8, 2015

Salem Telephone Company Products

The content of this case study will answer the questions as to whether the Salem Data Services Company is a profitable service to have for the Salem Telephone Company. From the provided exhibit in the case study, “Results of Operations,” the essay will answer which expenses are variable with respect to revenue hours, which expenses are fixed with respect to revenue hours, for each expense that variable with respect to revenue hours, the cost per revenue hours will be calculated and presented, assuming that intra-company usage is 205 hours, and commercial usage is at March level, a contribution income statement for Salem Data Services is presented, assuming the intra-company demand for service will average 205 hours per month, the level of commercial revenue hours of computer use necessary to break each month is stated, and since the intra-company demand is known to be 205 hours, the contribution from these sales is assured to cover a portion of fixed costs. Thus, to determine the level of commercial revenue hours required to break even, the contribution from commercial sales only needs to cover the fixed costs remaining after subtracting the fixed costs already covered by contribution from intra-company sales, an estimation of the effect on income of each of the options Flores has suggested if Wu increases the price to commercial customers to $1,000 per hour would reduce demand by 30%, reduces the price to commercial customers to $600 per hour would increase the demand by $30%, and increases in 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 30%, based on the analysis provided, is Salem Data Services really a problem to Salem Telephone...