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Salem Case

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1. “Revenues hours” represent the key activity that drives cost 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: * Power * Operations: hourly personnel

Fixed: * Rent * Custodial Services * Computer Leases * Maintenance * Depreciation: Computer Equipment * Depreciation: Office equipment and fixtures * Operations: salaried staff * Systems development and maintenance * Administration * Sales * Sales Promotion * Corporate Services

2. For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour. | Jan | Feb | March | Power | $1,546 | $1,485 | $1,697 | Operations: hourly personnel | $7,896 | $7,584 | $8,664 | Total Variable Costs | $9,442 | $9,069 | $10,361 | Total Revenue Hours | 329 | 316 | 361 | Variable Costs per Revenue Hour | $28.70 | $28.70 | $28.70 | Power per revenue hour | $4.70 | $4.70 | $4.70 | Operation: hourly personnel per revenue hour | $24 | $24 | $24 |

Variable Costs per Revenue Hour: (9442/329)= $28.7
Power per revenue hour: (1546/9442) x 28.7 = $4.7
Operation: hourly personnel per revenue hour: (7896/9442) x 28.7 = $24 3. Create a contribution margin income statement for Salem Data Services. Assume that intracompany usage is 205 hours. Assume commercial usage is at the March level. To find Sales Revenue:
Intracompany: $400/hour x 205 hours= $82,000
Commercial: $800/hour x 138 hours= $110,400
$82,000 + $110,400= $192,400
To find Variable Cost:
Variable Cost = $28.7 (138 + 205)
= $9844
To find Contribution Margin:
Contribution Margin = Sales Revenue – Variable Cost
$192,400 – $9844 = $182,556

To find Fixed Cost:
$223,300 – $10,361 = $212,939

To find Net Income:

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