...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 • • • • 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 subsidiary to parent should be less than $82,000 Problems • • • • Delayed equipment deliveries. Higher salary expectation by the personnel. Hard to find customers than expected. Lowest return on investment in 7 years. Fixed and Variable Costs of Salem Data Services Fixed Costs: o Rent o Custodial services o Computer leases o Maintenance o Computer equipment and fixtures o Salaried staff o Systems development and maintenance o Administration o Sales o Sales promotion o Corporate services Variable Costs: o Power o Hourly personnel • Power: Costs($) Cost per revenue hour for each variable expense January 1546 329 4.7 February 1485 316 4.7 March 1697 361 4.7 Total revenue hours Cost per revenue hour($ per hour) • Hourly Personnel: January Costs($) Total revenue hours Cost per revenue hour($ per hour) 7,896 329 24 February 7,584 316 24 March 8,664 361 24 Contribution margin intra company Usage(hours) Selling price per hour($) total sales Variable...
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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 up) The maintenance is necessary even when you do not produce/sell anything The deprecation depends on the number of years not on the number of hours sold Operations: salaried stuff consists of the six people necessary to run the center (the number of people remains the same) Systems development and maintenance the system needs to be developed and maintained constantly to keep the work in process Administration: the salaries are paid on a fixed regular basis Sales promotion: there is a certain amount of money that has been allocated on advertising Corporate services are independent from revenue (are obtained when needed) Sales (should equal an estimated amount) 2 2. January 1,576 7.896 329 4.7 March 4,485 7,584 316 4.7 February 1,697 8,664 361 4.7 24 24 24 28.7 Power Hourly personnel Total Rev. hours VC/Revenue hour (Power) VC/ Revenue hour (personnel) Total Variable Cost/ hour 28.7 28.7 Variable cost per revenue hour...
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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: 1485/316=4.6994 March: 1697/361=4.7008 Operations: Hourly personnel: January: 7896/329=24 February: 7584/316=24 March: 8664/361=24 3.Total Revenue Hour=Intracompany Usage+ Commercial Revenue Hour=205+138=343Hours According to the reading, intracompany work was billed at $400 per hour and commercial sales were billed at $800 per hour, so the total sales should equals 400*205+800*138=192,400 Variable Cost=Revenue Hours*Variable Cost per Revenue Hour =24*343 + 4.7*343 =9844.1 Fixed Cost=the sum of all of the fixed cost (Because Sales Promotion and corporate services are commercial usage, so calculating them at March level) = 8000 +1240 +95000 +5400 +25500 +680 +21600 +12000 +9000 +11200 +8083 +15236=212,939 Contribution Margin Income Statement Sales 192,400 Variable Costs (9844.1) Contribution Margin ...
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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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...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 Operations salaried staff Systems development and maintenance Administration and sales Sales promotion 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 intra company 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=$110,400 138*$28.70=$3960.60 ($800-28.7)*138= $106,439.40 Intracompany 205*$400=$82...
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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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...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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...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 hour 3. Sales Revenue: $192,400 Variable Cost: $(9,844.10) Contribution Margin: $182,555.90 Fixed Cost: $(212,939) Net Income: $(30,383.10) 4. To break even would require a level of 177.39 commercial revenue hours. 5. Option 1: Income decreases by $12,611.82 Option 2: Income decreases by $3948.18 Option 3: An additional $1548.72 could be spent on promotion and leave SDS without reported loss, assuming revenue hours increase 30%. 6. Based on my analysis, Salem Data Services is a problem to Salem Telephone Company. A 30% increase or decrease in price would incur a decrease of income in either scenario. A promotion increase seems implausible as well. As shown in Option 3, Salem Data Services could spend only $1548.72 in return for a 30% increase in commercial hours without reporting a loss. This appears to be an unreasonable increase in commercial hours for a mere 19% increase to an already low promotion budget. I believe Flores should either close down...
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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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...Comparative analysis of service quality of GP with other private Telco service providers in Bangladesh A COMPARATIVE ANALYSIS OF SERVICE QUALITY OF GRAMEENPHONE WITH OTHER PRIVATE TELECOMMUNICATION SERVICE PROVIDERS IN BANGLADESH by Md. Fuad Al Hassan ID: 0720053 An Internship Report Presented in Partial Fulfillment Of the Requirements for the Degree Bachelor of Business Administration INDEPENDENT UNIVERSITY, BANGLADESH April 2012 Comparative analysis of service quality of GP with other private Telco service providers in Bangladesh A COMPARATIVE ANALYSIS OF SERVICE QUALITY OF GRAMEENPHONE WITH OTHER PRIVATE TELECOMMUNICATION SERVICE PROVIDERS IN BANGLADESH by Md. Fuad Al Hassan ID: 0720053 Has been approved April, 2012 Mr. Md Sohel Islam Senior Lecturer School of Business Independent University, Bangladesh Comparative analysis of service quality of GP with other private Telco service providers in Bangladesh April 28, 2012 Mr. MD. Sohel Islam Senior Lecturer, School of Business Independent University, Bangladesh. Dear Sir, It is a great pleasure and honor for me to submit my internship report “A comparative analysis of perceived service quality of Grameenphone with other private telecommunication service providers in Bangladesh. I am submitting this report as a part of my internship in Grameenphone. This report will help the organization to find out the customers perception of the service quality comparing to the other telecommunication...
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...CUSTOMER SATISFACTION AND CUSTOMER RETENTION OF TELECOMMUNICATION COMPANIES IN BANADIR REGION BY Open University of Malaysia CUSTOMER SATISFACTION AND CUSTOMER RETENTION OF TELECOMMUNICATION COMPANIES IN BANADIR REGION Project Paper Submitted in Partial Fulfillment of the Requirement of the degree of Master of Business Administration ABSTRACT After the collapse of the central government in Somalia, the telecommunication industry was almost dismantled in the period (1991-1993). Since 1993, the telecommunication industry in Somalia has grown many folds; new companies joined the market to reap the potentials of this growing industry. Companies worked hard to introduce more innovative products to satisfy, attract and retain customers. This study seeks to describe the relationship between customer satisfaction and customer retention of Hormud and Nationlink, mobile phone operators in Mogadishu, Somalia. The method used was descriptive correlation design. Customer satisfaction indicators were: price, call clarity, and value-added services. Customer retention is indicated by: intention to repurchase, positive word-of-mouth, and patience towards price. In the descriptive analysis section, customer retention was low on all aspects of: intention to repurchase, positive word of mouth, and patience towards price. The results also showed that customer...
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...v.2.1 Introduction Back in late eighties while I was fresh out of college, I had a job as a sales rep for a major telecommunications company. One of my largest clients had called me into a meeting earlier that week telling me that she wanted her telephone bills lowered because they were more than she thought her company should be paying. After all, I was the person who sold them their services and I was supposed to take care of them. They were important to my company and I was anxious to do my best for them. I turned to the CTO and exclaimed “Absolutely! I’ll be back in a week with our new program and rates for you!” As I left their office, walking out the door I had NO idea what I was going to do. I was 23 and even though my company had already paid me for getting them as a customer, I knew the right thing to do was to help out my client and reduce their costs. The first thing I did was go to my boss and I asked. “’My client asked me to come in today and wanted me to reduce their phone bills, what do you think I should do?” My boss shot an angry look back at me “Didn’t you sell them a year ago? Aren’t they already a customer?” he scolded. “Yes I did, but I want to keep them as a happy customer so they don’t leave” I replied. “Forget them, you (and I) have already been paid. You need to move on, just let the customer support department out of Atlanta handle their issues and find some new business” he shouted back. I was shocked and surprised, but I was also undeterred. I decided...
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...threat of new entrants, and finally 5) rivalry among existing competitors. The first of these things is buyer power, which is defined as: “How easy is it for buyers to drive prices down” (“Porter’s five forces”, n.d.). If buyers have many choices of competitors to buy from, the buyer power is said to be high, alternatively if there are very limited suppliers that buyers can get what they want from, the buyer power is said to be low. Ideally, businesses want to reduce buyer power, or reduce the number of suppliers from which customers can obtain the product they want. Technology has enabled us with many tools that help reduce buyer power. The most common of these is a loyalty program. This rewards the customer for buying from your company. We see these everywhere from airlines that give out frequent flyer miles to the burger joint down the road that allows you to buy 6 burgers and get the 7th one free. There are many different variations of loyalty programs but the focus of each of them is to encourage the customer to do business with your business in exchange for some sort of reward. The second thing that we should look at is supplier power. This is the reverse of buyer power. Supplier power is high when buyers have few...
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