Prestige Data Service

1618 WordsDec 16, 20107 Pages
I) Appraise the results of operations of Prestige Data Service. Is the subsidiary really a problem to Prestige Telephone Company? Consider carefully the differences between reported costs and cost relevant for decisions that Daniel Rowe is considering. 1. The prestige Data Services grew from the needs of the Prestige Telephone Company to meet their needs of data handling at the time but the problem now is that the company is still operating at a loss. But is that a problem for the parent company? We do not think so, if the Prestige Data Services does not exist anymore, the Prestige Telephone still have to pay for the cost such as: lease, maintenance, computer services..., but they get no contribution. In order to check if the data…show more content…
III) Estimate the effect on income each of the options Rowe has suggested if Bradley estimates as follows : Let’s analyze different options for the Prestige Data Services, which Mr Rowe provided and asked Bradley to estimate the effects on profits. We will still use the information in March, 2003 as the input. a. Increasing the price to commercial customers to $1,000 per hour would reduce demand by %30. So in this case, the total revenue hours will be: 138 * (1 – 0.3) = 96.6 hours, and could be roundup to 97 commercial hours of selling computer use. Because the fixed costs would not change, the change in commercial hours and the price would affect the contribution number. So we get the total contribution: Contribution = 97 hours * ($1000 - $29) = $94187 Let’s calculate the contribution in March 2003 (at present) and have a comparison: Contribution at present = 138 hours * ($800 - $29) = 106398 …………………(1) So we can see, the contribution in case of increasing price to commercial hours, leading to reducing the demand by 30% is $12211 lower than the current contribution. Hence, income would go down if we do like this way. The
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