...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? We think that Variable Expenses considering the revenue hours as driver are: • • hourly personnel salaries expense Power Expense Fixed expenses with respect to revenue hours: Rent custodial services computer leases Maintenance depreciation of computer equipment, office equipment and fixtures operations salaried staff systems development and maintenance administration and sales sales promotion and corporate services 2.For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour. Power Hourly Personnel Salaries Overall Cost January 1546/329=4.7 7896/329=24 =24+4.7=28.7 February 1485/316=4.7 7584/316=24 =4.7+24=28.7 March 1697/361=4.7 8664/361=24 =24+4.7=28.7 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. Revenue Variable costs Contribution Margin Fixed Costs Operating Income (loss) From the case we know that intracompany work was billed at $400 per hour, and commercial sales were billed at $800 per hour. Commercial 138*800=110400 138*28.7=3960.6 (800-28.7)*138= 106439.4 ----------- 106439.4 Intracompany 205*400=82000 205*28...
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...Salem Telephone Company Case Study Salem Telephone Company Case Study Introduction Salem Data Service, SDS, is a vital asset to Salem Telephone Company. Even though there are losses occurring, SDS has begun to increase performance and losses have been decreasing over the last several months. Background Salem Telephone Company needed computer services to plan, control, and account for operations so it created Salem Data Service, SDC. Because Salem Telephone Company was a regulated utility, it needed to gain approval for this venture. This new subsidiary would be separate but wholly owned by Salem Telephone Company. Salem Data Service was allowed to compete with other computer service organizations, but it could not charge Salem Telephone Company more than $82,000. Both companies would pay each other for services rendered. Key Problems Revenue and cost data in the quarterly review revealed the lowest return on investment in seven years. Flores is reluctant to shut down or sell SDS, but feels that it is time to reassess SDS profitability. He has scheduled a meeting with Wu to discuss 3 possible scenarios. Alternatives Flores is contemplating asking Wu to estimate the effects on profit from increasing price to customers; not including Salem, reducing price, and increasing sales efforts. 1) Which expenses are variable and which are fixed with respect to revenue hours Fixed cost in respect to revenue hours: Rent ($8,000) Custodial services ($1,240) Computer...
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...Case Study Analysis: Salem Telephone Company Contents Summary 2 Analysis 2 Questions 3 Recommendations 5 Works Cited 6 Summary In 2000, Peter Flores, president of Salem Telephone Company (STC) told the Public Service Commission that a profitable computer service subsidiary would reduce pressure for telephone rate increases. Once approval was received from Public Service Commission, STC, a regulated public utility, established Salem Data Services (SDS) in 2001, an unregulated wholly owned subsidiary, to perform data processing for the telephone company and, additionally, to sell computer services to other companies and organizations in its immediate metropolitan region. Following three years of operations, SDS has not been able to post profits and the president of STC is now faced with a challenge of whether the subsidiary SDS will be a profitable business venture. The president of STC, Peter Flores, is preparing to meet with Cynthia Wu, manager of SDS, to assess and determine the profitability of the subsidiary SDS. Our group’s tasks are to: ▪ analyze and review common cost behavior, distinguishing different types of costs (variable or fixed) as they pertain to business activities; ▪ construct a contribution margin income statement; ▪ review net income relative to reduction and commercial price increases; and ▪ formulate recommendations to the president of STC based on our financial analysis on whether or...
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...Salem telephone case 1. ”Revenue hours” represent the key activity that drives costs at Salem Data Service . Which expenses in Exhibit 2 are variable with respect to revenue hours? Which expenses are fixed with respect to revenue hours? A : Variable costs : The power, hourly personal. Fixed costs : The rent, custodial service, computer leases, maintenance, computer equipment, office equipment and fixtures, salaried staff, system development and maintenance, administration, sales promotion, Corporate service. 2. For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour. A : | |January |February |March | |Total revenue hours |329 |316 |361 | |Power |1546 |1485 |1697 | |Hourly personal |7896 |7584 |8664 | |Variable cost per revenue hour |28.699 |28.699 |28.700 | 3. Create a contribution margin income statement for Salem Data Service. Assume that intracompany usage is 205 hours. Assume commercial usage at the March level. A : From the text, we know...
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...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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...Q1, Power, hourly personnel of operations and corporate service are variable with respect to revenue, and the rest are all fixed. Due to the power expense and hourly personnel salaries directly depend on the hours. Q2, Items Month | Jan. | Feb. | Mar. | Power | Costs | $1,546 | $1,485 | $1,697 | | Hours | 329 | 316 | 361 | | Cost per hour | $4.70 | $4.70 | $4.70 | Operation Personnel | Costs | $7,896 | $7,584 | $8,664 | | Hours | 329 | 316 | 361 | | Cost per hour | $24 | $24 | $24 | Total cost per hour | $28.70 | $28.70 | $28.70 | Q3, Intercompany sales = 205 hours * $ 400 = 82,000 Commercial sales = 138 hours * $800 = 110,400 Total Variable Expense = (Power + operation hourly personnel) * hours = ($4.70+$24)*(205+138) = $9844.10 Contribution margin = Sales revenue – Variable costs = $192,400 - $9,844 = $182,556 Contribution Income Statement: Sales | | Intercompany sales | $82,000 | Commercial sales | $110,400 | Total | $192,400 | Less Variable Costs: | Power | $1,612 | Operations: hourly personnel | $8,232 | Contribution Profit | $182,556 | Contribution Margin | 95% | Less Fixed Expense: | Rent | $8,000 | Custodial services | $1,240 | Computer leases | $95,000 | Maintenance | $5,400 | Computer equipment | $25,500 | Office equipment and fixtures | $680 | Operations: salaried staff | $21,600 | System Development and maintenance | $12,000 | Administration | $9,000...
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...Salem Telephone Case 1) In my opinion the expenses that are variable with respect to revenue hours at Salem Data Services are Power, Hourly personnel, and Sales promotion. I believe these expenses are variable because they change with revenue. Corporate services is a mixed cost and there is not enough information to ascertain the portion that is variable. The fixed expenses with respect to revenue include, Space costs, Equipment costs, depreciation expense, Salaried staff, system development and maintenance, administration and sales. 2) Salem Data Services First Quarter 2004 Summary of Computer Utilization | |January |February |March |Total Qtr | |Number of Weekdays (M-F) |22 |20 |23 |65 | |X 24 hours per day |528 |480 |552 |1560 | |Number of Saturdays |5 |4 |4 |13 | |X 8 hours per day |40 |32 |32 |104 | |Total hours available for revenue |568 |512 ...
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...Salem Telephone Company Case Study 1. Variable Expenses with respect to revenue hours: Power expense, hourly personnel salaries expense. Fixed expenses with respect to revenue hours: Rent, custodial services, computer leases, maintenance, depreciation of computer equipment and office equipment and fixtures, operations salaried staff, systems development and maintenance, administration, and sales, sales promotions, corporate services. 2. Units: dollars per hour January February March Power expense 4.7 4.7 4.7 personnel salaries expense 24 24 24 Total Variable cost per revenue hour 28.7 28.7 28.7 3. Income statement for Salem Data Services From the article, I know that intracompany work was billed at $400 per hour, and commercial sales were billed at $800 per hour. So, intracompany contribution margin: $400-$28.7= $371.3/hr Commercial contribution margin: $800-$28.7=$771.3/hr Sales revenue $192,400 Variable cost $9844.1 Contribution margin $182,555.9 Fixed cost $212,939 Net loss ($30,383.1) 4. Revenue = Variable Costs + Fixed Costs 205(400) + X (800) =(X+205) (28.7) +212,939 X= 177.39 commercial hours sold to break-even 5. Original March: P= Net Income= ($23,700) For option 1: P=205(400)+1000(96.6)-301.6(28.7) -212,939= -42,994.92 For option 2: P=205(400) +600(179.4)-384.4(28.7) -212,939= -34,331.28 For option 3: P=205(400) +800(179.4)-384.4(28.7) -212,939 = 1548.72 In conclusion, for option1 and 2, both will decrease in net income. For option3, net income will increase to a benefit...
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...Salem Telephone Company Case Study 1. Variable Expenses with respect to revenue hours: Power expense, hourly personnel salaries expense. Fixed expenses with respect to revenue hours: Rent, custodial services, computer leases, maintenance, depreciation of computer equipment and office equipment and fixtures, operations salaried staff, systems development and maintenance, administration, and sales, sales promotions, corporate services. 2. Units: dollars per hour January February March Power expense 4.7 4.7 4.7 personnel salaries expense 24 24 24 Total Variable cost per revenue hour 28.7 28.7 28.7 3. Income statement for Salem Data Services. From the article, I know that intracompany work was billed at $400 per hour, and commercial sales were billed at $800 per hour. So, intracompany contribution margin: $400-$28.7= $371.3/hr Commercial contribution margin: $800-$28.7=$771.3/hr Sales revenue $192,400 Variable cost $9844.1 Contribution margin $182,555.9 Fixed cost $212,939 Net loss ($30,383.1) 4. Revenue = Variable Costs + Fixed Costs 205(400) + X (800) =(X+205) (28.7) +212,939 X= 177.39 commercial hours sold to break-even 5. Original March: P= Net Income= ($23,700) For option 1: P=205(400)+1000(96.6)-301.6(28.7) -212,939= -42,994.92 For option 2: P=205(400) +600(179.4)-384.4(28.7) -212,939= -34,331.28 For option 3: P=205(400) +800(179.4)-384.4(28.7) -212,939 = 1548.72 In conclusion, for option1 and 2, both will decrease in net income. For...
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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, Sales Promotion, and Corporate Services. Rent, Custodial Services, Computer Equipment Leases, Computer Maintenance, Computer Depreciation, Office Equipment and Fixtures Depreciation, Salaried Staff Wages, Systems Development and Maintenance, Administrative Wages, and Sales Wages are all obviously fixed because the expenses do not vary monthly. However, Sales Promotion and Corporate Services expenses change monthly, but the change is not dependent on revenue hours. Therefore, they are fixed with respect to revenue hours. 2.) The calculations for variable costs with respect to revenue hours are as follows: | January | February | March | Total Power Expense | $1,546 | $1,485 | $1,697 | Total Revenue Hours | 329 | 316 | 361 | Total Variable Cost per Revenue Hour | $4.70 | $4.70 | $4.70 | | | | | | January | February | March | Total Hourly Personnel Wages Expense | $7,896 | $7,584 | $8,664 | Total Revenue Hours | 329 | 316 | 361 | Total Variable Cost per...
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...1. Operations wages for hourly personnel and office equipment and fixtures are the only variable cost with respect to revenue hours. All other costs are fixed with respect to revenue hours. With higher fixed cost, Salem Data Services has a higher leverage and is therefore riskier. 2. ($7,896 + $1,546) / 329 hours = $28.70 / hour. For every hour spent working, the company spends 28.70 dollars. 3. Intracompany Commercial Total Number of Hours (a): 205 138 343 Revenue (a x b): $82,000 $110,400 $192,400 Variable Costs (a x c): ($5,883.50) ($3,960.60) ($9,844.10) Contribution Margin: $76,116.50 $106,439.40 $182,555.90 Fixed Costs: ($212,939) Net Income: ($30,383.10) 4. Commercial fixed cost = total fixed cost – intracompany fixed cost CFX = $212,939 – (76,116.50) = $136,822.50 (SP/unit * # of units sold) = (VC/unit * # of units sold) + FC $800x = $28.70x + $136,822.50 $771.3x = $136,822.50 x= 177.39 hours 5. Increase price to $1000 Intracompany Commercial Total Number of Hours (a): 205 96.6 301.6 Revenue (a x b): $82,000 $96,600 $178,600 Variable Costs (a x c): ($5,883.50) ($3,960.60) ($9,844.10) Contribution Margin: $76,116.50 $92,639.40 $168,755.90 Fixed Costs: ($212,939) Net Income: ($44,183.10) Decrease price to $600 Intracompany Commercial Total Number of Hours (a): 205 179.4 384.4 Revenue (a x b): $82,000 $107,640 $189,640 Variable Costs (a x c): ($5,883...
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...HBS case – Salem Telephone Company Opening In 2000 the Public Service Commission (PSC) was informed by the president of Salem Telephone Company (STC) that a profitable computer service subsidiary would reduce pressure for increases to telephone rates. With approval from the Public Service Commission, STC, a regulated public utility, established Salem Data Services (SDS) in 2001, an unregulated public utility to perform data processing for the telephone company and additionally to sell computer services to other companies and organizations in its’ immediate metropolitan region. After three years of operations SDS has yet to finalize a month in positive numbers and the president of STC is faced with the challenge of whether the subsidiary, SDS can be a profitable business. As Peter Flores, president of STC is preparing to meet with Cynthia Wu, manager of SDS, our group will review some common cost behaviors associated with distinguishing different types of costs; whether fixed or variable relevant to activity, construct a contribution margin income statement, review net income relative to reduction and increases to commercial price, and finally based on our financial analysis of SDS, make specific recommendations to the president of STC as to whether it is more or less profitable to keep the subsidiary SDS. With Incremental analysis we will be able to calculate the differences in revenue and costs between decision alternatives. Determining the actual fixed and variable costs...
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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 institution after two years of operation. In the recent year, Salem Telephone Company produced the lowest return on investment to shareholders in seven years. While Flores was prepared to re-consider the future of Salem Data Services, the manager Cynthia Wu urged Flores to give the subsidiary company more time, as she believe the firm would begin to show profit soon. This analysis will review the dilemma Peter Flores has faced and provide recommended course of action Flores should take in deciding what to do with Salem Data Services. Using account analysis, we showed that Salem Data Services carry an extremely high fix cost comparing to the variable cost. The fix cost is nearly 95% to the total cost per revenue hour. Variable cost is only accounted for a little over 5% of the total cost per revenue hour. As fix costs do not fluctuate according to revenue, income statement with high fix cost tends to skew the profit result of the company. Flore should revisit the fix cost categories...
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...With these developments, it is obvious that conflicts between parties of different nationalities occur and liability to tax on income of foreigners especially among those engaging in trading venture. Whilst the laws affecting domicile and residence may be sufficiently settled, it is paramount for courts to pursue a detailed analysis to ascertain specific preliminary issues so as to avoid controversial rulings. Courts often handle numerous financial cases that involve what can be best described as foreign or international elements. In such cases, court must decide whether it has the jurisdiction under the Family Law Act 1975 to make a decision on such cases. In the event that it is determined that the court is invested with the jurisdiction to determine the case, the court has to consider whether there is a system of law in foreign country that also has the jurisdiction to handle the case. As it was addressed in the case Attorney General of New Zealand v Ortiz [1984] AC 1, these benefits and costs to either party if the case resolution is made in foreign country as compared with the apparent country should also be a subject of concern. [1] Legal systems in most countries around the world adopt community property regime, which takes effect at the inception of marriage or at the time of divorce. For instance, California and Massachusetts in the United States have adopted community property regimes that support equal division of assets upon divorce. However, this provision...
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...Adapted from Bernhardt & Kinnear (1988). Cases in marketing management, pp. 6-16. Plano, TX: Business Publications, Inc. Pay careful attention to the following points. They are often used by instructors to evaluate either a written or oral analysis. 1. Be complete. Each area of the situation analysis must be discussed, problems and opportunities identified, alternative presented and evaluated using the situation analysis and relevant financial analysis, and a decision must be made. An analysis that omits part of the situation analysis or only recognizes one alternative is not a good analysis. Second, each area must be covered in-depth and within insight. 2. Avoid rehashing case facts. Every case has a lot of factual information. A good analysis uses facts that are relevant to the situation at hand to make summary points of analysis. A poor analysis just restates or rehashes theses facts without making relevant summary comments. 3. Make reasonable assumptions. Every case is incomplete in terms of some piece of information that you would like to have. A good case analysis must make realistic assumptions to fill in the gaps of information in the case. For example, the case may not describe the purchase decision process for the product of interest. A poor analysis would either omit mentioning this or just state that no information is available. A good analysis would attempt to present this purchase decision process by classifying the product and drawing upon real life...
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