Salem Telephone Essay Example

be premature. Instead, the organization should focus on increasing commercial sales and maximizing computer utilization by revisiting the promotion and sales strategy. Converting sales and promotions to variable costs could motivate staff to push for additional customers. The average utilization rate of computer hours is 60%, based on the Salem Data Services Summary of Computer Utilization. However, the Results of Operations show an average loss of $35,327, raising concerns about operations. Fixed costs are $189,620, and average variable costs are $32,640. The division's contribution margin is $154,292 or 82.5%. Further analysis reveals that corporate services make up almost 50% of the total variable cost per hour of $97.34.

An assessment should be made regarding the allocation of corporate costs. The current method involves allocating based on cost per square foot. Since variable costs are relatively low, there is some justification for continuing with this approach. However, converting additional costs to variable costs and re-evaluating the allocation method may lead to better outcomes. The following questions must be answered: 1) Which expenses listed in Exhibit 2 are variable concerning revenue hours? Which are fixed costs concerning revenue hours? 2) Calculate the cost per revenue hour for each cost that is variable with respect to revenue hours. 3) A contribution margin income statement for Salem Data Services must be created, assuming that Intracompany usage is 205 hours and Commercial usage is at the March level. 4) Determine how many commercial revenue hours of computer use would be necessary to break even each month if the intracompany demand for service will average 205 hours per month. 5) Estimate the impact on Income of each of Flores's proposed

options if...