Salem
1. "Revenue hours" represent the key activity that drives costs at Salem Data Services. Which expenses in Exhibit 2 are variable with respect to revenue hours? Which expenses are fixed with respect to revenue hours? Variable expenses: Power Operations: hourly personnel Rent Custodial services Computer leases Maintenance Dep: Computer equipment Dep: Office equipment and fixtures Operations: salaried staff Systems development and maintenance Administration Sales Sales promotion Corporate services
Fixed expenses:
2. For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour. Jan 1,546 7,896 9,442 329 28.70 0.03 Feb 1,485 7,584 9,069 316 28.70 0.03 Mar 1,697 8,664 10,361 361 28.70 (costs/hours) 0.03 (hours/costs)
Power Op: hourly personnel Total Variable Costs Total Revenue Hours Var. Costs per Rev. Hour Var. Cost per Rev. Hour. Breakdown
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
Power per revenue hour Op: hourly personnel per revenue hour
= =
$ $
4.70 24
3. Create a contribution margin income statement for Salem Data Services. Assume that intracompany usage is 205 hours. Assume commercial usage is at the March level. Revenues Intracompany Commercial Total Revenues Less Variable Expenses Contribution Margin Fixed Expenses Rent
$ $ $ $ $ $
82,000 =$400/hour * 205 hours 110,400 =$800/hour * 138 hours 192,400 9,844 =$28.70 * (205 hours + 138 hours) 182,556 8,000
Custodial services Computer leases Maintenance Dep:comp equip Dep:office equp. & fixt. Op:salaried staff Sys. devel. & maint. Administration Sales Sales promotion Corporate services Total Expenses Net Income
$ $ $ $ $ $ $ $ $ $ $ $ $
1,240 95,000 5,400 25,500 680 21,600 12,000 9,000 11,200 8,083 15,236 212,939 (30,383)
4. Assuming the intracompany demand for service will average 205 hours per month, what level of commercial revenue hours of computer use would be necessary to break even each month? Total Revenues - Total Costs =
Fixed expenses:
2. For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour. Jan 1,546 7,896 9,442 329 28.70 0.03 Feb 1,485 7,584 9,069 316 28.70 0.03 Mar 1,697 8,664 10,361 361 28.70 (costs/hours) 0.03 (hours/costs)
Power Op: hourly personnel Total Variable Costs Total Revenue Hours Var. Costs per Rev. Hour Var. Cost per Rev. Hour. Breakdown
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
Power per revenue hour Op: hourly personnel per revenue hour
= =
$ $
4.70 24
3. Create a contribution margin income statement for Salem Data Services. Assume that intracompany usage is 205 hours. Assume commercial usage is at the March level. Revenues Intracompany Commercial Total Revenues Less Variable Expenses Contribution Margin Fixed Expenses Rent
$ $ $ $ $ $
82,000 =$400/hour * 205 hours 110,400 =$800/hour * 138 hours 192,400 9,844 =$28.70 * (205 hours + 138 hours) 182,556 8,000
Custodial services Computer leases Maintenance Dep:comp equip Dep:office equp. & fixt. Op:salaried staff Sys. devel. & maint. Administration Sales Sales promotion Corporate services Total Expenses Net Income
$ $ $ $ $ $ $ $ $ $ $ $ $
1,240 95,000 5,400 25,500 680 21,600 12,000 9,000 11,200 8,083 15,236 212,939 (30,383)
4. Assuming the intracompany demand for service will average 205 hours per month, what level of commercial revenue hours of computer use would be necessary to break even each month? Total Revenues - Total Costs =