Table of Content

Executive Summary 1
Background 2
Analysis 3
Recommendations 4
Appendix A- Summary of Computer Utilization 5
Appendix B- Summary Results of Operations, First Quarter 2004 6
Appendix C- Variable and Fixed Cost in respect to revenue hours 7
Appendix D- Breakdown of Variable Cost per Hour Usage 8
Appendix E- Contribution Margin Income Statement, March 2004 9
Appendix F- Contribution Margin Ratios 11
Appendix G- Break-even Analysis 12
Appendix H- “What if” Analysis 13 Executive Summary

Since 2001, Salem Data Services has been operating at a net loss. After review the reports from first quarter 2004, it has become apparent that action will be necessary. Through our examination of the first quarter 2004 reports, we have concluded three key areas to focus on. These include utilization of computer usage hours, how the results of the operations have been unprofitable, and how sales promotions are not tied to current levels of work. Our analysis begins with careful inspection of the variable and fixed costs of Salem Data Services. It is clear the variable costs equaling $32,640, do not contribute enough to covering the total fixed costs of $189,620. The other focus of the analysis lies in the re-evaluating the usage hours available for Commercial Sales. Currently the level of Commercial Sales is under utilized. Available hours need to be maximized to eliminate the current loss and begin to show growth and profit. We have included data that will prove by increasing Commercial usage hours; the break-even point can be achieved. Overall, we do believe in the ability of Salem Data Services to become a profitable subsidiary of Salem Telephone Company. We do not believe it is necessary to shut down operations or sell Salem Data Services. The opportunity costs from Intra-Company sales and the expenses paid to Salem Telephone