Salem Telephone Company

Total contribution needed to cover the old fixed costs + new fixed cost + profit is just the three factors added together.

Intracompany work was billed at $400 per hour, a rate based on usage estimates for 2001

13. If the selling price is $22 per unit, what is the contribution margin per unit sold?

The income statement on page 50 shows the variable costs and fixed costs more clearly. It has broken down the

In this case, you will be able to cover all of your fixed costs only by changing of sales mix, without changing the prices. Please keep in mind that you have some more variable operating costs, not covered by this calculation (see Table on p. 2). They can amount to more than $1,000, if you add depreciation for equipment and truck.

1. The local Mastermind store sells innovative educational toys. Part of their service is giving advice to customers about the best toys for a particular age group, which requires having more customer service representatives in the store. During the month long Christmas buying season, it makes half of its $500,000 yearly sales. Its contribution margin on average is 40% and its fixed costs for the year are about $150,000. The owner believes that she could make even higher sales, if she had more customer service representatives on the floor during the peak season. She plans on hiring four more people for 200 hours each at $20 per hour. How much additional revenue does she have earn to the nearest dollar

2. Considering your answer to item 1, the first three exhibits, and related introductory discussion, is it likely that the accounting system may distort product profit significantly? Why? (Ignore general, selling, and admin expense.)

Question 3: Identify all costs associated with this venture. Categorize these costs as fixed or variable.

Contribution Margin = (Unit selling price – unit variable cost) / unit selling price = ($9.00 – $2.60) / $9.00 = 0.7111 = 71.111%

In this table, it reflects the changes in fixed plant overhead from $420,000 to $378,000. The company still has the fixed selling and administrative expense per quarter of $118,000. The new company fixed overhead is now at $496,000 from the past $538,000 ($42,000) change from past to

The amount of extra sales that would be required to cover this cost of 300,000 would be

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?

3. For each of the individual overhead accounts at Bridgeton, do you believe the given cost is variable, fixed, or something else? Why? (Use information or evidence from the case to support your evaluation, if possible. For most of these costs, there is no single right answer from the case information, so the goal is to come up with a reasonable estimate.)

Note Exhibit 3, Year 2 cash flows, the “add total change in cash” is an incorrect number. It should be $1,371,350.

TOTAL FIXED COSTS PER YEAR (for 4 sales representatives-New York, Los Angeles, Chicago, and Dallas)