...Salem Telephone Company – Case Study Summary In 2001 Salem Telephone established a subsidiary, Salem Data Services, for the purpose of performing data processing services for the telephone company and to meet this need for other companies. By 2003 Salem Data Service had finally overcome the problems experienced during startup and was running smoothly but their reporting had yet to show a profitable month. Peter Flores, president of Salem Telephone Company was discouraged by the presented results to date; however he was reluctant to suggest to Cynthia Wu, manager of Salem Data Services, that Salem Data be closed down or sold. He thought that the opportunity to have this subsidiary seemed too good to give up easily. Flores questioned whether the accounting reports truly painted a clear picture of the contribution that Salem Data Services was making to Salem Telephone. In other situations he had reviewed in the past, he felt that the procedure used in accounting for separate activities in the company tended to obscure the costs and benefits they provided. A review of the financial data shows Salem Data with an average monthly operating loss of almost approximately $35,000 in the first quarter. However, if Flores factors in the $82,000 savings Salem Telephone received in March as a result of the $400/hour discount on data services as well as the $8,000 Salem Telephone received in rent from Salem Data, the company still proves itself to be a valuable commodity. If Salem Telephone...
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...SUMMARY Salem Telephone Company operates as a regulated public utility. The state Public Service Commission (PSC) permitted Salem to establish a wholly owned subsidiary to provide computer services to other companies for a profit. The reason for the separate entities was so Salem Data Services could sell services unregulated and Salem Telephone could operate without raising rates. In 2000, the initial report to the PSC from the president of Salem Telephone was to convince them that the public entity, Salem Data Services, would become profitable and would end the need to raise telephone rates. By 2003, Salem Data had not turned a profit. Mr. Flores requested a meeting with the manager of Salem Data, Ms. Wu, so some type of action would be taken to “reduce the drain on Salem Telephone Company resources” (Bruns, Jr. & Hertenstein, 2005). The analysis that follows will show that Salem Data Services will not be a problem to Salem Telephone and eventually make a profit by spending more on promotional activities to increase commercial hours, and by moving fixed costs into variable costs. ANALYSIS Salem Data’s variable expenses with respect to revenue hours are power expense and hourly salary. Their fixed expenses for revenue hours are rent, custodial services, computer leases, maintenance, depreciations of computer and office equipment and fixture, operations salaried staff, system development and maintenance, administration, sales, sales promotion and...
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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 after management realized that there was a market in the metropolitan area for the computer time that was not used by Salem Telephone they decided to sell it to the commercial market. The only stipulation was that the Public Service Commission restricted the average monthly services charged provided by Salem Data Services to Salem Telephone not to exceed $82,000. DISCUSSION: The company had difficulties at the onset as expected such as finding fewer customers than originally expected. Although this problem was alleviated by 2003, the Salem Data Services remained unprofitable and continued to have a large amount of hours available to sell. As far as pricing, the intrapersonal hours were $400 dollars per hour while the commercial hours were priced at $800 per hour. In addition the Data Company had several costs but many at a discounted rate from what an independent company would pay due to its relationship with the Telephone Company. In fact the Data Company had no expenses with...
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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...
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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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...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...
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... a. The existing system. b. The system proposed by the accounting manager. c. The system proposed by the consultant. 3. Which system is preferable? Why? 4. Would you recommend any changes to the system you prefer? Why? 5. Would you treat the new machine as a separate cost center or as a part of the main test room? Bridgeton Industries: Automotive Component & Fabrication Plant 1. The official overhead allocation rate used in the 1987 model year strategy study at the Automotive Component and Fabrication Plant (ACF) was 435% of direct labor cost. Calculate the overhead allocation rate using the 1987 model year budget. Why do you get different numbers? 2. Calculate the overhead allocation rate for each of the model years 1988 through 1990. Are the changes since 1987 in overhead allocation rates significant? Why have these changes occurred? 3. Consider two products in the same product line: Product 1 Product 2 Expected Selling Price $62 $54 Standard Material Cost 16 27 Standard Labor Cost 6 3 Calculate the expected gross margins as a percentage of selling price on each product based on the 1988 and 1990 model year budgets, assuming selling price remains constant and material/labor costs do not change from standard. 4. Are the product costs reported by the cost system appropriate for use in the strategic analysis? 5. Assume that the selling prices, volumes, and material...
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...Salem Telephone Co Case Study #2 Overview: Salem Telephone Company (STC) is a telephone company who is regulated by the state Public Service Commission. The state Public Service Commission encouraged public utilities under its jurisdiction to seek new sources of revenue and profits. This would reduce the need for rate increase that higher costs would otherwise bring. The company formed an agreement with the state Public Service Commission to create a subsidiary. Thus Salem Data Services (SDS) was created to perform data processing for the telephone company and sell computer products and services to other companies and organizations. The separation between the companies is because STC was a regulated utility and SDS is an unregulated company. The only restriction the state Public Service Commission had was the average monthly charges for services provided by SDS to STC is not to exceed $82,000. This was the estimated cost of equivalent services used by STC in the year 2000. With retaining the separation between the two companies all accounts of SDS were separated from STC. Lastly, each company paid the other for services from the other. During April 2004 the president of STC, Peter Flores met with SDS’s manager Cynthia Wu to discuss the condition of the company. SDS currently has yet to have a profitable month, but Wu feels the company is progressing well and needed more time to show profits. This raised a concern for Flores. Also, in 2003 STC’s income was at an all-time...
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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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...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 | | | Intracompany sales | $82,000 | | Commercial sales | $110,400 | | | Total revenue | $192,400 | Variable Cost | | | | | Power | | ($1,612.10) | | Hourly Personnel | ($8,232.00) | | | Total variable cost | ($9,844.10) | | | | | | Contribution Margin | $182,556 | | | | | | Fix Cost | | | Space costs: | | | | Rent | ($8,000) | | | Custodial services | ($1,240) | | Equipment costs: | | | | Computer leases | ($95,000) | | | Maintenance | ($5,400) | | | Depreciation: | | | | | Computer equipment | ($25,500) | | | | Office equipment and fixtures | ($680) | | Wages and salaries: | | | | Operations: salaried staff | ($21,600) | | | Systems development and maintenance | ($12,000) | | | Administration | ($9,000) | | | Sales | ($11,200) | | Sales promotion | ($8,083) | | Corporate services | ($15,236) | | | Total Fix Cost...
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...TOPICS IN MANAGEMENT ACCOUNTING AMIS 4310 Topics/Case Descriptions Measuring Product Costs Case: Seligram, Inc.: Electronic Testing Operations Case Description: Explores the obsolescence of a cost system when technology changes. In particular, it asks students to increase the number of cost centers and allocation bases. The firm moves from a one-center, direct labor-hour system to a three-center, direct labor-hour and machine-hour systems. In addition, the case demonstrates how cost systems can induce subtle and not so subtle shifts in the strategy of the firm. In particular, we see how certain businesses are made to look inappropriately attractive or unattractive. Cost Behavior, Capacity Analysis and the Downward Demand Spiral Case: Bridgeton Industries: Automotive Component & Fabrication Plant Case Description: Bridgeton Industries was experiencing reduced sales. To become more competitive it introduced a classification procedure for products based upon their productivity and other factors. Products were classified into three groups: world class, potentially world class, and non-world class. The firm outsources the non-world class products. This outsourcing causes the costs on the remaining products to increase because some fixed costs associated with the outsourced products did not go away. These residual costs caused more products to become non-world class and hence candidates for outsourcing...
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...Management Accounting- ACC-701 Spring -2014 Faculty: GIFT Business School Credit hours: 03 Course level: Graduate (Elective) Campus/Location/Instruction Mode: GIFT University/On Campus/In Person Course Instructor: Mr. Naveed Ahmad Mughal naveed.mughal@gift.edu.pk Consultation hours: Monday to Friday (as proposed by the instructor) Pre-requisite: ACC-512 / 516 Timing As per university time table This document was last updated: February 18, 2014 BRIEF COURSE DESCRIPTION: The aim of the course is to provide an in depth knowledge and understanding of the use of accounting information for internal purposes contrary to the external disclosure focus of the financial accounting. In particular, the objective of the course is to familiarize students with the fundamental concepts of management accounting system, and use of such information for decision making and performance evaluation. COURSE LEARNING OBJECTIVES: The primary objectives of this course are: 1. To develop an understanding of the costing, cost calculation. 2. To develop understanding of application of different techniques of cost allocation. 3. To understand the relationship between cost and volume and application of this in making different decisions. 4. To develop ability to make different decisions by using accounting information. 5. To understand the application of budgeting and standard costing as controlling tool. 6. To apply the different tools of management accounting for performance...
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...TOPICS IN MANAGEMENT ACCOUNTING AMIS 4310 Topics/Case Descriptions Measuring Product Costs Case: Seligram, Inc.: Electronic Testing Operations Case Description: Explores the obsolescence of a cost system when technology changes. In particular, it asks students to increase the number of cost centers and allocation bases. The firm moves from a one-center, direct labor-hour system to a three-center, direct labor-hour and machine-hour systems. In addition, the case demonstrates how cost systems can induce subtle and not so subtle shifts in the strategy of the firm. In particular, we see how certain businesses are made to look inappropriately attractive or unattractive. Cost Behavior, Capacity Analysis and the Downward Demand Spiral Case: Bridgeton Industries: Automotive Component & Fabrication Plant Case Description: Bridgeton Industries was experiencing reduced sales. To become more competitive it introduced a classification procedure for products based upon their productivity and other factors. Products were classified into three groups: world class, potentially world class, and non-world class. The firm outsources the non-world class products. This outsourcing causes the costs on the remaining products to increase because some fixed costs associated with the outsourced products did not go away. These residual costs caused more products to become non-world class and hence candidates for outsourcing...
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...TOPICS IN MANAGEMENT ACCOUNTING AMIS 4310 Topics/Case Descriptions Measuring Product Costs Case: Seligram, Inc.: Electronic Testing Operations Case Description: Explores the obsolescence of a cost system when technology changes. In particular, it asks students to increase the number of cost centers and allocation bases. The firm moves from a one-center, direct labor-hour system to a three-center, direct labor-hour and machine-hour systems. In addition, the case demonstrates how cost systems can induce subtle and not so subtle shifts in the strategy of the firm. In particular, we see how certain businesses are made to look inappropriately attractive or unattractive. Cost Behavior, Capacity Analysis and the Downward Demand Spiral Case: Bridgeton Industries: Automotive Component & Fabrication Plant Case Description: Bridgeton Industries was experiencing reduced sales. To become more competitive it introduced a classification procedure for products based upon their productivity and other factors. Products were classified into three groups: world class, potentially world class, and non-world class. The firm outsources the non-world class products. This outsourcing causes the costs on the remaining products to increase because some fixed costs associated with the outsourced products did not go away. These residual costs caused more products to become non-world class and hence candidates for outsourcing...
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...KRISPY KREME DOUGHNUTS INC (KKD) DEF 14A Definitive proxy statements Filed on 05/11/2012 Filed Period 06/12/2012 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Under Rule 14a-12 KRISPY KREME DOUGHNUTS, INC. (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction a 2) 3) Aggregate number of securities to which transaction Per unit price or other underlying value of transactio Exchange Act Rule 0-11 (set forth the amount on wh calculated and state how it was determined): Proposed maximum aggregate value of transaction: Total fee paid: 4) 5) [ ] [ ] Fee paid previously with preliminary materials: Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)...
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