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  • Salem Telephone Fixed Variable Expenses Break Even Analysis

    Diunggah oleh

    Micah Thomas
    454 tayangan10 halaman
    Fixed expenses include rent, equipment costs, wages, promotions and corporate services. Variable expenses are power and hourly wages. Contribution margin is revenue minus variable costs. Net operating income is contribution margin minus fixed costs. Break-even is achieved at 178 hours. Scenario 3 of increasing promotion 30% is the only option that yields profit, but the increased promotional costs are not accounted for. The maximum promotion budget that ensures profit is $2011.50.

    Deskripsi Asli:

    case about managerial accounting principles used for decesion making

    Judul Asli

    salem phone company

    Hak Cipta

    © Attribution Non-Commercial (BY-NC)

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    Laporkan Dokumen Ini
    Fixed expenses include rent, equipment costs, wages, promotions and corporate services. Variable expenses are power and hourly wages. Contribution margin is revenue minus variable costs. Net operating income is contribution margin minus fixed costs. Break-even is achieved at 178 hours. Scenario 3 of increasing promotion 30% is the only option that yields profit, but the increased promotional costs are not accounted for. The maximum promotion budget that ensures profit is $2011.50.

    Hak Cipta:

    Attribution Non-Commercial (BY-NC)
    Unduh sebagai PPTX, PDF, TXT atau baca online dari Scribd
    Tandai sebagai konten tidak pantas
    454 tayangan10 halaman

    Salem Telephone Fixed Variable Expenses Break Even Analysis

    Diunggah oleh

    Micah Thomas
    Fixed expenses include rent, equipment costs, wages, promotions and corporate services. Variable expenses are power and hourly wages. Contribution margin is revenue minus variable costs. Net operating income is contribution margin minus fixed costs. Break-even is achieved at 178 hours. Scenario 3 of increasing promotion 30% is the only option that yields profit, but the increased promotional costs are not accounted for. The maximum promotion budget that ensures profit is $2011.50.

    Hak Cipta:

    Attribution Non-Commercial (BY-NC)
    Unduh sebagai PPTX, PDF, TXT atau baca online dari Scribd
    Tandai sebagai konten tidak pantas
    dari 10

    Salem Telephone Company

    Fixed and Variable Expenses


    Fixed 1. Space Costs Rent Custodial Services 2. Equipment Costs Computer Leases Maintenance Depreciation Computer Equipment Office Equipment and Fixtures 3. Wages and Salaries Operations: Salaried Staff Systems Development and Maintenance Administration Sales 4. Sales Promotions 5. Corporate Services Variable 1. Equipment Costs Power 2. Wages and Salaries Operations: Hourly Personnel

    Cost per Revenue hour for Variable

    Expenses
    January Total Revenue Hours Total Power Operations: Hourly Personnel Cost of Power/ Hour Hourly Personnel cost/ Hour 329 1546 7896 4.699 24 February 316 1485 7584 4.699 24 March 361 1697 8664 4.701 24

    Contribution Margin Income Statement


    Contribution Margin is the difference between total revenue and variable expense Net operating income is obtained by subtracting total fixed expenses from the contribution margin Total Revenue is $192400 Contribution Margin is $ 182555.90 Net Operating Income is $(30383.10)

    Breakeven
    Break-even Quantity = Net fixed Expenses / (Price Variable Cost per unit) Net fixed expenses = Total fixed expenses Contribution Margin Variable Cost per unit is the sum of variable cost due to power and hourly personnel Break-even hours = 177.39 ~ 178 hours

    Scenario 1
    Increasing the price to $1000 hours would reduce demand by 30% Commercial sales hours reduces to 97 Resulting in
    o Total revenue of $179000 o Contribution Margin $170332 o Net Operating Income $(42606.40)

    Scenario 2
    Reducing the price to $600 hours would increase demand by 30% Commercial sales hours increases 180 Resulting in
    Total revenue of $190000 Contribution Margin $178950.50 Net Operating Income $(33988.50)

    Scenario 3
    Increased promotion resulting in additional revenue hours of 30% Commercial sales hours increases 180 Resulting in
    Total revenue of $226000 Contribution Margin $214950.50 Net Operating Income $2011.50

    Recommendations
    Scenario 3 in which promotion is increased is the only option fetching profit But there is no mention of the increased cost of promotion
    o Maximum possible increase in promotion can be $2011.50(Break-even)

    The above calculations are not showing the cost the telephone company is saving because of subsidized rate by SDS

    Thank you

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