Saleman Data Services Case

Table 1 Under-Utilization 42.08% 38.28% 38.18%

Jan Feb March

Number of Weekdays (M~F) X 24hrs/day 22 20 23

528 480 552

Number Of Sat x 8hrs/day 5 4 4

40 32 32

Total Hrs Available for revenue 568 512 584

Revenue Hrs
(1)
Intracompany 206 181 223
(2)
Commercial 123 135 138
(17) Total Rev Hrs 329 316 361
Hrs Available to sell 239 196 223

Table 2
Jan Feb March

Type Of Cost
Revenue
Intracompany Sales $ 82,400 $ 72,400 $ 89,200 Note : Intracompany Bill $400/hr
Commercial Sales $ 98,400 $ 108,000 $ 110,400 Bills $800/hr

Total Revenue $ 180,800 $ 180,400 $ 199,600

Expenses
(3) Rent Fixed $ 8,000 $ 8,000 $ 8,000 Paid to Salem Telephone
(4) Custodial Services Fixed $ 1,240 $ 1,240 $ 1,240 Paid one time in a year to Salem Telephone.
$ 9,240 $ 9,240 $ 9,240

Equipment Cost
(5) Computer Leases Fixed $ 95,000 $ 95,000 $ 95,000 Life 4yrs
(6) Maintenance Fixed $ 5,400 $ 5,400 $ 5,400 Salable but would not bring more than its book value.
Depreciation
(7) Computer Equipment Fixed $ 25,500 $ 25,500 $ 25,500
(8) Other Equipment & Fixtures Fixed $ 680 $ 680 $ 680
(9) Power Variable $ 1,546 $ 1,485 $ 1,697
$ 128,126 $ 128,065 $ 128,277

Wages & Salaries

(10) Operational : Salaried Staff Fixed $ 21,600 $ 21,600 $ 21,600 Salary of the Six people
(11) Hourly personnel Variable $ 7,896 $ 7,584 $ 8,664 Salary based on Hr/s who were required when system is in the operation
(12) System devlopment & maintenance Fixed $ 12,000 $ 12,000 $ 12,000
(13) Administration Fixed $ 9,000 $ 9,000 $ 9,000
(14) Sales Fixed $ 11,200 $ 11,200 $ 11,200
$ 61,696 $ 61,384 $ 62,464

(15) Sales & Promotion Fixed $ 7,909 $ 7,039 $ 8,083

(16) Corporate Services Fixed $ 15,424 $ 15,359 $ 15,236 Paid to the Salmen based on the factor of Total wages,salaries,total AR, & past dues
$ 222,395 $ 221,087 $ 223,300

Net Incomes $ (41,595) $ (40,687) $ (23,700)

Q1 All Expenses type is classified.

Herein, one of the component of the Corporate Service is wage which also includes variable wage,while it has many other components;So the overall
variable will have very less impact. Also,change pattern from month on month is not consistent w/ corporate services, in such un-certainities about the
impact. Corportate cost is assumed fixed expenses.

Q2
Variable Expense
Power $ 4.70 { Divide (9)/(17)}
Hourly personnel $ 24 { Divide (11)/(17)}
(18) Total Variable Cost/hr $ 28.70

Q3
Revenue Hrs(Commercial Hrs+Intracompany Hrs)
(19) Commercial hrs 138
(20) Intracompany hrs 205
Contribution Margin
(21) Intracompany Margin $ 371.30 { Substract : 400 - (18)}
(22) Commercial $ 771.30 { Substract : 800 - (18)}

Income
(23) Commercial $ 106,440 { Multiply (19) X (22) }
(24) Intracompany hrs $ 76,117 {Multiply (20) X (21) }

(25) Total Revenue $ 182,556 { Sum of (23) + (24) }

(26) Total Fixed Expenses $ 212,939 { Sum Of (3) + (4) +(5)+(6)+(7)+(8)+(10)+(12)+(13)+(14)+(15)+(16) }

Net Income $ (30,383) { Substract (25) - (26) }

Q4 Intracompany hrs 205 (27)

Commercial hrs X { Consider X as un-known } (28)
Total Fixed Cost $ 212,939 { Same as (26) }

Total Revenue From Intracompany Hrs $ 76,116.69 { Using Contribution Margin; (27) X (21) } (29)
Total Revenue From Commercial hrs 771.3x {Multiply (28) X (22) } (30)

Net Income 76116.69+771.3x - 212,939 { Net Income : (29) + (30)-(26) }

Break Even
Net Income =0

(31)
 Required Commercial hrs ,X 177.39 Hrs (31)

Q5
Condition A : March
Price to Consumer Cutomers $ 1,000 (32)
Demand Reduce 30% (33)
March Demand Consumer 96.6 (34)
Commercial Contributed Margin $ 971.30 (35)
Intracompany Margin $ 371.30 (36)

Net Income $ (42,994.64) { Net Income : (35) X (34) + (36) X (20) - (26) } (37)

Condition B : March

Price to Consumer Cutomers $ 600 (38)

Demand Up 30% (40)
March Revised Demand 179.4 (41)

Commercial Contribution Margin $ 571.30 { Substract (38) - (18) } (42)

Net Income $ (34,330.93) (43)

Condition C
Commercial Revenue hrs Increase by 30% $ 179.4
Intracompany $ 205 { Using (20) }
Cost of promotion (26) + Additional Promotion Cost

Net Income $ 1,549 (43)

Q6 As per , Q3 Salem Data service is making loss of approx. 30k. Also, it is noticed that Break -even condition for the Salemen to achieve commercial revenue hrs of 177.39~178. To gain the customers, options
available are :
(1) Reduce Price to the customer
(2) Increase price to increase the contribution margin.
(3) In present condition gain the market share.
(4) Reduce the fixed cost as Utilization is upto 60% only.
While the Option 1 and 2 increases loss to the company, In case of the Option 3 company gains the profit if the promotion cost remains constant or less than $1549.Also,at present the variable component of the
company is less and company is running almor 40% under utilized;so the Salem should foucs on Hourly wages for all employees & also need to work on the cut-down other fixed cost. On further strengthing
should be given to advertise and build the customer base. Hence, Flore should implement these measures & wait for some time ;if inspite of all these if margin doesn't improves desion of closing will can be
taken.