Create a contribution margin income statement for Salem Data Services. Assume that intracompany usage is 205 hours. Assume that commercial usage is at the March level.

Intracompany work was billed at $400 per hour.

Commercial sales were billed at $800 per hour.

Exhibit 1 Salem Data Services Summary of Computer Utilization, First Quarter 2004

January

February

March

Number of weekdays (MF)

22

20

23

X 24 hours per day

528

480

552

Number of Saturdays

5

4

4

X 8 hours per day

40

32

32

Total hours available for revenue

568

512

584

Revenue hours

Intracompany

206

181

223

Commercial

123

135

138

Total revenue hours

329

316

361

Hours available to sell

239

196

223

Exhibit 2 Salem Data Services Summary Results of Operations, First Quarter 2004
	January	February	March
Revenues
Intracompany sales	$82,400	$72,400	$89,200
Commercial sales	98,400	108,000	110,400
Total revenue	$180,800	$180,400	$199,600
Expenses
Space costs:
Rent	$8,000	$8,000	$8,000
Custodial services	1,240	1,240	1,240
	9,240	9,240	9,240
Equipment costs
Computer leases	95,000	95,000	95,000
Maintenance	5,400	5,400	5,400
Depreciation:
Computer equipment	25,500	25,500	25,500
Office equipment and fixtures	680	680	680
Power	1,546	1,485	1,697
	128,126	128,065	128,277
Wages and salaries
Operations: salaried staff	21,600	21,600	21,600
Operations: hourly personnel	7,896	7,584	8,664
Systems development and maintenance	12,000	12,000	12,000
Administration	9,000	9,000	9,000
Sales	11,200	11,200	11,200
	61,696	61,384	62,464
Sales promotion	7,909	7,039	8,083
Corporate services	15,424	15,359	15,236
Total expenses	$222,395	$221,087	$223,300
Net income (loss)	($41,595)	($40,687)	($23,700)

4. Assuming the intracompany demand for service will average 205 hours per month, what level of commercial revenue hours of computer use would be necessary to break even each month?

Since the intracompany demand is known to be 205 hours, the contribution from these sales is assured to cover a portion of the fixed costs. Thus, to determine the level of commercial revenue hours required to break even, the contribution from commercial sales only needs to cover the fixed costs remaining after subtracting the fixed costs already covered by the contribution from intracompany sales.