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
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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
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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
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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
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Ed Kiefer Chapter 4 4-5 10500-8500/900000-300000 2000/600000= .003 8500-(.003x300000) Low 8500-900=7600 Copies 20500-(.003x900000) High 20500-2700=17800 Copies 4.8 Variable costs Staff Salaries 33000 Office supplies 300 Total 33300 Fixed costs Manager salaries 8000 Dep of equip 400 Share of building Costs 2000 Total 10400 Variable Total
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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
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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 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)
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