Salem Telephone Case

Sara Syed

ACCT 3309

Salem Telephone Company Worksheet

1. According to Exhibit 2 and with respect to revenue hours, expenses concerning the operations salaries staff, the systems development and maintenance wages to be paid, equipment costs, rent costs, custodial services costs, sales personnel salary, expenses concerning sales promotions and corporate services, and administrator salary are all fixed expenses. With respect to revenue hours, power expenses, expenses concerning wages for hourly working personnel are variable expenses.

2. Variable expense’s cost per revenue hour:

Operations expenses concerning salaries and wages for hourly personnel:

Jan - $7,896/329 = 24 per revenue hour

Feb - $7,584/316= 24 per revenue hour

Mar - $8,664/361= 24 per revenue hour

Operations expenses concerning power:

Jan - $1,546/329 = 4.7 per revenue hour

Feb - $1,485/316 = 4.7 per revenue hour

Mar - $1,697/361 = 4.7 per revenue hour

Cost per revenue hour: $28.7

3. Contribution Margin Income Statement for Salem Data Services:

Revenues

Intracompany ($400x205 hrs) ………………….$82,000

Commercial ($800x138 hrs)……………………...$110,400

Total Revenues………………………………………….$192,400

Variable Expenses ………………………………………………..$9,844

Contribution Margin …………………………………………….$182,566

Fixed Expenses

Rent …………………………………………………………$8000

Custodial Services ……………………………………..$1240

Computer leases…………………………………………$95,000

Maintenance costs………………………………………$5400

Equipment Depreciation …………………………….$26180

Salaried Staff ………………………………………………$21600

System Development & Maintenance Staff ……$12,000

Administrator Salary…………………………………….$9000

Sales staff…………………………………………………….$11,200

Sales Promotion ………………………………………….$8083

Corporate Services ………………………………………$15236

Total Fixed Expenses……………………………………………$212939

Net Income ………………………………………..…………($30,383)

4. What level of Commercial Revenue Hours is needed to break even?

(400 x 205hrs) + (205X)(28.7) + ($212,939)

X = 177.39 or 178...