Salem Telephone Company Accounting Case Essay Example

(refer to Exhibit 1). This implies that a reduction of 5% in revenue hours, corresponding to the decrease in intra company hours, will bring about a 27% downfall in the operating income.

Assuming the internal company demand for usage hours stays constant at 205, the affiliate company must achieve 176 hours of commercial revenue from computer usage to reach a breakeven point (refer to Exhibit 2). This denotes a 27% uplift in commercial revenue hours compared to the company's March performance, assuming costs remain unchanged. Cynthia Wu, Salem Data Service's director, has proposed ideas on how to enhance the data service arm's contribution towards the parent telephone company.

Understanding the financial impact of each proposed idea is essential. If the rate for commercial clients is raised by $1000 per hour, there will be a 30% drop in demand, leading to a higher net operating income loss of $41,178. Conversely, if the rate for commercial clients is lowered by $600 per hour, demand would rise by 30%, resulting in a net operating income loss of $34,810. Salem Data Service could alternatively choose to boost advertising expenditure by $1,070, which would result in no monthly losses if commercial usage increased by 30%; refer to Exhibit 1.

The assessment reveals that the primary issue with Salem Data Service is its surplus capacity. However, to truly comprehend the advantages offered by Salem Data Services, Flores should take into account the actual cost reductions experienced by Salem Telephone Company. The company saves about $ 46,000 per month by not contracting out these services (refer to Exhibit 3). It is advised that as long as these cost savings persist, Flores should continue managing Salem

Data Service.