# Salem Telephone

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Salem Telephone Company
Managerial Accounting Case Study 1: Salem Telephone Company 96122050 96122051 96122052 96122073 96122085 96122088 96122092

Group 1

Through our study of Salem Telephone Company (STC), we’re going to answer that if Salem Data Services (SDS) is really a profitable business to keep by using break-even point analysis. Before we come out the final solution, let’s discuss SDS’ accounting report step by step. First, we have to divide the various costs incurred in SDS into two types: variable costs and fixed costs. From Exhibit 2 we can see that only “Power” and “Operations: hourly personnel” are variable costs that have relation to the total revenue hours. Other expenses listed in Exhibit 2 are all fixed costs (Q1). Besides, we can calculate the unit variable costs per revenue hour as follows (Q2):
January 1,546 7,896 9,442 329 28.70 February 1,485 7,584 9,069 316 28.70 March 1,697 8,664 10,361 361 28.70

Power Operations: hourly personnel Total variable costs Total revenue hours Variable costs per revenue hour

Furthermore, by distinguish the variable costs and fixed costs, we can construct the contribution margin income statement for SDS at March level, assuming 205 hours for intracompany usage (Q3):
Revenues Intracompany 82,000 Commercial 110,400 Total Revenues 192,400 Variable expenses (power + hourly personnel) 9,844 Contribution margin 182,556 Fixed expenses Rent 8,000 Custodial services 1,240 Computer leases 95,000 Maintenance 5,400 Depreciation 26,180 Salaried staff 21,600 System development 12,000 Administration 9,000 Sales 11,200 Sales promotion 8,083 Corporate services 15,236 Total fixed expenses 212,939 Net income -30,383

Based on above assumptions, we can obtain the number of commercial revenue hours as follows:
(205 × 400 + x × 800) − 28.7 × (205 + x) − 212939 = 0 82000 + 800 x − 5884 − 28.7 x − 212939 = 0

x=...

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#### Salem Telephone Case Study

...800 | \$53,800 | 53,800 | TOTAL FC | \$189,620 | \$189,620 | \$189,620 | 2) Cost per Revenue Hour for Variable Expenses: Revenue Hours> | January329 | February316 | March361 | Power | \$1546 | \$1485 | \$1697 | Cost/Revenue Hr. | \$4.70/hr. | \$4.70/hr. | \$4.70/hr. | Hourly Personnel | \$7896 | \$7584 | \$8664 | Cost/Revenue Hr. | \$24/hr. | \$24/hr. | \$24/hr. | Corporate Services | \$15,424 | \$15,359 | \$15,236 | Cost/Revenue Hr. | \$46.88 | \$48.60 | \$42.20 | Sales Promotions | \$7,909 | \$7,039 | \$8,083 | Cost/Revenue Hr. | \$24.04/hr. | \$22.28/hr. | \$22.39/hr. | 3) Contribution margin income statement for Salem Data Services Assumption: Intra company usage=205 hours; Commercial usage for March=138 hours Revenue Hours Intra company: 205 Commercial: 138 Total Revenue Hours: 343 Salem Data Services Income Statement | | Revenues | | Intra company sales | \$82,000 | Commercial Sales | 110,400 | TOTAL REVENUE | \$192,400 | | | LESS Variable Expenses | | Power | \$1612.10 | Hourly Personnel | 8,232 | Corporate Services | 14,474.60 | Sales Promotions | 7,679.77 | TOTAL VARIABLE COSTS | \$31,998.47 | CONTRIBUTION MARGIN | \$160,401.53 | | | LESS FIXED EXPENSES...

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