Salem Data Services - Case Study Example

The common thing about the fixed expenditures is that they are fixed throughout the three months. Based on the above analysis, Salem Data Services is a big challenge for Salem Telephone Company. There are a number of facts that can be used to prove this assertion. One of the most visible facts is seen in the Salem Data Services contribution margin income statement. The contribution margin income statement for Salem Data Services proves that the net income is by far negative and cannot be easily turned into profits.

The loss incurred through the provision of these services is far high that it cannot be turned around by simply adding or reducing customer prices. Even with the 30% increase in demand, there will be minimal effect on the actual income that the company gets from these operations. The same applies to increased prices. In fact, increased prices will even make things worse because they will have lower demand as compared to what they were having at the time when this report was made. However, if they increase his prices, then they might be able to get a higher per-unit profit on this service.

This would not be advisable because they will o be able to raise enough money to cater for their costs. This will only imply at the end of the day they will still incur losses. If the prices are lower then they will definitely have more people demanding their services. However, the problem that assisted in lower prices is the decrease in per-unit income. When the per-unit income for service provision is low the company will incur losses at the end of the day. This is because the total income earned is less than the cost of producing the service.

Therefore, the only thing that the company can do is trying to lower its production costs. Not all expenses are flexible. However, the company could look at the expenses with high flexibility and adjust them so that they could be able to earn profits from Salem Data Services. Expenses such as computer, leased, maintenance, office equipment and fixture, wages and salaries, and sales and promotion call all be reduced with the aim of reducing the operating cost related to the production of his service.