Salem Telephone Company • • • • C.V. Hareesh Naidu V.Venkata Surya Teja B. Asheesh Kumar M. Rohit Kumar 186 168 032 Salem Telephone Company • Subsidiary : Salem Data Services • Data processing service provider for the telephone company. • Sell computer services to other companies. • Initially started to reduce telephone rate hikes. • Currently running in losses • Mr. Flores wished to have a wholly owned entity rather than a public utility company. • Average monthly charge for services by the
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Salem Telephone Company SUMMARY: Peter Flores, President of Salem Telephone Company decided to create a subsidiary in the form of an unregulated data services company called Salem Data Services in 2000. Flores belief was that with the company unregulated it would become a profitable business and prevent the need, in the future, to increase phone rates due to increasing costs at Salem Telephone. Originally the company only provided intra-company services for Salem Telephone, however
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Salem Telephone Company • • • • C.V. Hareesh Naidu V.Venkata Surya Teja B. Asheesh Kumar M. Rohit Kumar 186 168 032 Salem Telephone Company • Subsidiary : Salem Data Services • Data processing service provider for the telephone company. • Sell computer services to other companies. • Initially started to reduce telephone rate hikes. • Currently running in losses • Mr. Flores wished to have a wholly owned entity rather than a public utility company. • Average monthly charge
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Case Study #1. Salem Telephone Company 1. Variable expenses: Power (the more hours sold, the more energy consumed) The hourly personnel (operations) works only when the computers are in operation Fixed expenses: The rent has to be paid despite any level of production ($8,000 monthly) The custodial services depend on Salem Telephone's estimated space, they are independent from the revenue of the Company The computer leases were acquired to run the business (before it was actually started
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Salem Telephone Company 1.Variable Cost: Power, Operations: hourly personnel. Fixed Cost: Space cost-rent, Custodial services, Computer leases, Maintenance, Computer equipment depreciation, Office equipment and fixtures depreciation, Operations: salaried staff, systems development and maintenance, Administration, sales, sales promotion, Corporate services. 2. Cost per revenue hour=Cost/revenue hour Power: January: 1546/329=4.6991 February:
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Managerial Accounting Salem Telephone Company Question 1 Fixed Expenses: * Rent * Custodial services * Computer leases * Maintenance * Computer equipment * Office equipment and fixtures * Salaried staff * Systems development and maintenance * Administration * Sales * Sales promotion * Corporate services * Variable Expenses: * Power * Hourly personnel Question 2 Question 3: Income Statement Date | March | Revenues |
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1. Revenue hours represent the key activity that drives costs 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? A) Variable with respect to revenue hours Hourly personnel Salaries expense Power Expense B) Fixed expenses with respect to revenue hours: Rent Custodial services Computer leases Maintenance Depreciation of computer equipment, office equipment and fixtures
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Salem Data Services was established as computer data service firm. Flores initially believed that Salem Data Services would be profitable subsidiary for the parent company, Salem Telephone Company. Salem Data Services would perform data processing for Salem Telephone Company as well as sell computer services to other firms. Flores stood by the idea that the subsidiary would lower Salem Telephone Company’s need of increasing telephone rates. Salem Data Services struggled to become a profitable
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Salem Telephone Company 1. In Exhibit 2, expenses fixed relative to revenue hours are: Rent, Custodial services, Computer leases, Maintenance, Computer equipment, Office equipment and fixtures, Operations: salaried staff, Systems development and maintenance, Administration, Sales, Sales promotion, and Corporate services. Expenses that are variable relative to revenue hours: Power, Operations: hourly personnel. 2. Power: $4.70 per revenue hour Operations (hourly personnel): $24.00 per revenue
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James Whittle Salem Telephone Company Case Study 9/29/2014 1.) The variable costs in Exhibit 2 are Power and Hourly Personnel Wages as the costs fluctuate from month to month and are driven by the revenue hours for the company. The fixed costs in Exhibit 2 are Rent, Custodial Services, Computer Equipment Leases, Computer Maintenance, Computer Depreciation, Office Equipment and Fixtures Depreciation, Salaried Staff Wages, Systems Development and Maintenance, Administrative Wages, Sales Wages
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