Because of its relationship with Salem Telephone, Salem Data Services was able to avoid many costs an independent company would have. Because this value is not solely tied to revenue hours, corporate services must be treated as a fixed cost related to revenue hours.
An outside contractor who took the computer off-line for eight hours each week for testing provided routine maintenance of the computers and upkeep during the weekend shifts not used for commercial customers.
Sales personnel, who called upon and serviced present and prospective commercial clients, were also salaried, as were the administrators of Salem Data Services.
Should Flores insist on any of the suggested options or just be more patient for Salem Data Services to get into the black? For the exclusive use of R. Thus leasing costs were not a savings and computers continued to depreciate until lease finished. Although Flores was discouraged by results to date, he was reluctant to suggest to Wu that Salem Data Services be closed Salem telephone case or sold.
While the sales promotion expenses would reasonably be expected to rise as the expected revenue rises, there is no direct correlation to the revenue hours.
Flores received two reports on the operations of Salem Data Services. In addition, the state Public Service Commission had encouraged all public utilities under its jurisdiction to seek new sources of revenue and profits to reduce the need for rate increases that higher costs would otherwise bring.
More essays like this: Ortega Salem Telephone Company Salem Data Services started operations inand as was typical for most start-ups, there had been some problems. Operations salaries included those of the six people necessary to run the center around the clock; in addition there were operations wages paid hourly workers who were required when the computer was in operation.
An agreement with the state Public Service Commission had permitted Salem Telephone to establish Salem Data Services, a computer data service subsidiary, to perform data processing for the telephone company and to sell computer service to other companies and organizations.
Therefore, our team believes that closing Salem Data Service Company was not a prudent option, and that Salem Data Service Company could realize profit if it increased its Sales promotion. And most important, customers were harder to find than earlier estimates had led the company to expect.
From the case, and Exhibit 1, we had following data: In addition Salem Telephone Company would also be able to save expenses of Custodial service the most direct save is not longer need staff. The reports for the quarter revealed a persistent problem: Revenue and cost data were summarized in the quarterly report on results of operations Exhibit 2.
It was necessary for these two companies to be separate because Salem Telephone was a regulated utility, and Salem Data Services was an unregulated company. Given the condition that Intra-company demand was hours, the breakeven point units could be calculated as follows: If we decided to close SDS, we could have saved on maintenance expenses, because we no longer needed spend the time to do routine maintenance work.
The summary of computer utilization in Exhibit 1 shows the hours of computer time that were available and how they were used. Personnel had commanded higher salaries than expected. The corporate services expense is variable only to the extent that hourly personnel make up the total corporate service expense balance.
In other situations he had reviewed in the past, he felt that the procedures used in accounting for separate activities in the company tended to obscure the costs and benefits they provided. The expenses will be incurred whether 0 or revenue hours are realized.
As additional revenue hours are realized, the cost to power the computers and to pay the personnel to assist commercial consumers will increase. Professor Emeritus William J.
The company mentioned in the case is fictional. At that time, Flores felt it was necessary to reassess Salem Data Services. Although at first it seemed like Change of price could help SDS Company, our sensitivity analysis above indicated that neither one of the options of increasing price deceasing demand or reducing price increasing demand could prevent SDS Company from a net losses.Salem Telephone Company recently established Salem Date Services, a computer service subsidiary of the telephone company.
The new subsidiary was established in efforts to earn the company increased revenues in order to relieve pressure to increase rates for the regulated telephone company. Many of SDS's expenses were shared by Salem Telephone company and should they choose not to operate the subsidary they would save only about $ Based on your analysis above.
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Salem Telephone Co. Case Solution, Seems to be a computer unprofitable subsidiary. Managers must decide whether it actually is unprofitable and consider whether changes in prices or promotio.
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