Salem Cell phone Company

Salem Cell phone Company-Case Examine

Peter Flores, President of Salem Mobile phone Company, is convinced that a computer subsidiary firm (Salem Data Services) seems to be unprofitable. And because of this, he or she must decide and determine be it actually unprofitable and consider whether within prices or perhaps promotion may well improve earnings by using the Break-Even point research. But before we all come out to the solutions, we should discuss Salem Data Services accounting report.

Initially, we have to divide the various costs incurred in Salem Service plans in two types: Variable costs and Fixed Costs. From Demonstrate 2 we can see that only " Power" and " Functions: hourly personnel" are varying costs which may have relation to the entire revenue hours (Question 1). Other bills listed in Demonstrate 2 are Fixed Costs.

Now we can compute the unit of Variable Costs per Income Hours since follows-Question 2:


Electricity $1, 546 $1, 485 $1, 697

Operational hours-hourly personnel 7, 896 7, 584 8, 664

Total Variable Costs $9, 442 $9, 069 $10, 361

Total Revenue hours329316361

Variable Costs per Revenue hour $28. 70 $28. 70 $28. 70

Furthermore, by distinguish the variable costs and fixed costs, we now can easily construct the contribution perimeter Income Statement for SDS at its Drive level, if, perhaps 205 several hours for Intercompany usage-Question several

Income Assertion


-Intracompany $82, 500

-Commercial 110, 500

Total Revenues hundranittiotv?, 400

Variable Expenditures:

-Power one particular, 697

-Hourly Personnel 8, 147

Subtotal Variable Bills 9, 844

Contribution Margin 182, 556

Fixed Expenses:

-Rent almost eight, 000

-Custodial Solutions 1, 240

-Computer Leases 95, 000

-Maintenance your five, 400

-Depreciation 21, 180

-Salaried Staff 21, 600

-System Development doze, 000

-Administration being unfaithful, 000

-Sales 10, 200

-Sales Promo 8, 083

-Corporate Services 15, 236

Total Set Expenses 212, 939

Net Income/(Loss) (30, 383)

Based on the above assumtions, we can obtain the number of commercial revenue hours since follows-Question some:

IntercoDemanded Days

Fixed CostsRevenueCost($28. 70 Back button 205 hrs)

$212, 939 $(82, 000) $5, 883 = $136, 822

$800 -- $28. 70 $771. 31 178

Therefore , SDS needs to provide at least 178 commercial hours to be able to even

According to Peter Flores' ideas, if industrial price is increased to $1, 000, the need reduces thirty percent, then the effect on Net Income will be-Question five:


Earnings HrsReduce %SubtotalDiff

13830%41. 4 97

(205 Times $400 + 97 X $1, 000) - 28. 70 Back button (205+97) - $212, 939 =($42, 606)

On the other hand, if commercial price is reduced to $600, require increases thirty percent, then Net Income will be


Revenue HrsIncrease %SubtotalDiff

13830%41. 5 one hundred and eighty

(205 X $400 + 180 X $600) - twenty-eight. 70 By (205+180) - $212, 939 =($33, 989)

Another suggestion is to maximize 30% business hours by increasing product sales promotion. The additional costs will not exceed:


Revenue HrsIncrease %SubtotalDiff

13830%41. 5 one hundred and eighty

(205 X $400 + 180 X $800) - 28. 70 Back button (205+180) - $212, 939 =$2, 012

What should Peter Flores perform about Salem Data Services-Question 6:

1 . Using selling price strategy to enhance commercial earnings hours This technique will not put extra costs. And according to the estimate above, changing selling price to both $1, 000 for ninety-seven hours or $600 pertaining to 180 hours can not prevent a net loss.

2 . If SDS wants to maximize 30% of commercial sales, the extra promotion costs can not go over $2, 012. Considering the campaign cost $8, 083 in March, further $2, 012 is about 25%. That is, SDS can only increase 25% promo cost to achieve 30% of growth.

Depending on the examination,...

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