Salem Telephone Company

Salem Telephone Company

Looking at Exhibit 2 in the case the expenses that appear to be variable costs with respect to revenue hours include, Power, Operations: Hourly Personnel, Sales Promotion. The fixed costs with respect to revenue hours include rent, custodial services, computer leases, depreciation, maintenance, salaried staff, system development and maintenance, administration, sales, and corporate services. (Corporate services because even though they fluctuate they are based on other variables but are not all variables I thought that fluctuated as much as some of the variable costs?)

2.

Variable costs January February March

Power 1546 1485 1697

Hourly Personnel 7896 7584

8664

Sales Promotion 7909 7039 8083

Variable Costs/ hr 17351/329=$52 16108/316=$51 18444/361=$51

3. Contribution Income Statement:

Revenues:

Revenues

Intracompany Revenue (@$400,205 hours) 82000

Commercial Revenue (@$800, 138 hours) 110400

Total Revenue 192400

Variable Costs (@$51) (17493)

Contribution Margin 174907

Fixed Costs

Rent 8000

Custodial Services 1240

Computer Leases 95000

Depreciation 26180

Maintenance 5400

Salaried Staff 21600

System Development and Maintenance 12000

Administration 9000

Sales 11200

Corporate Services (March value) 15236

Total Fixed Costs 204856

Profit $-29949

4. Break Even Analysis:

Revenue= Variable Costs + Fixed Costs

Revenue= 205*400+x*800