Salem Telephone Company
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Salem Telephone Company QUESTION 1: In terms of units, fixed cost per unit decreases as the activity increases while variable cost per unit remains constant regardless of change in activity. The expenses associated with fixed and variable costs with respect to hours as showcased in Exhibit 2 are as follows: Fixed CostsVariable CostsRent Custodial Services Computer Leases Maintenance Depreciation Operation: salaried staffSystems Development and maintenance Administration Sales Sales Promotion Corporate Services Power Operations: hourly personnel ______________________________________________________________________________QUESTION 2: With respect to revenue hours, the variable costs per revenue hours: Total Revenue HoursVariable CostsVariable costs/ revenue hours January329Power: $1,546Operations(hourly personnel): $7,896Power: $1,546/ 329 = $4.70Operations(hourly personnel): $7,896/ 329 = $24February316Power: $1,485Operations(hourly personnel): $7,584Power: $1,485/ 316 = $4.70Operations(hourly personnel): $7,584/ 316 = $24March361Power: $1,697Operations(hourly personnel): $8,664Power: $1,697/ 361 = $4.70Operations(hourly personnel): $8,664/ 361 = $24Thus, reaffirming the fact that variable costs per unit remain constant regardless of change in activity.
_____________________________________________________________________________QUESTION 3:If Intracompany work is billed at $400/ hr and commercial sales at $800/hr: Rate Hours Total Intracompany$400223$400* 223 = $89,200Commercial $800138$800* 138 = $110,400$199,600Total Revenue equals $199,600. With a $4.70/ unit for Power and $24/ unit for Operations (hourly personnel), total variable expenses:Cost/ unitHoursTotalPower$4.70223+138 = 361$4.70* 361 = $1,697Operations (hourly personnel) $24223+138 = 361$24* 361 = $8,664$10,361Total Variable Costs equal $10,361.Total Fixed Cost: Rent $8,000Custodial Services $1,240Computer Leases $95,000Maintenance $5,400Depreciation (Computer Equipment + Office equipment and fixtures)$25,500+$680 = $26,180Operations: salaried staff$21,600Systems Development and maintenance $12,000Administration $9,000Sales $11,200Sales Promotion $8,083Corporate services$15,236$212,939INCOME STATEMENTSALEM TELEPHONE COMPANY INCOME STATEMENT MARCH 2004Sales Revenue $199,600Variable Cost $10,361Contribution Margin$189,239Fixed Cost$212,939 Net Loss ($23,700)