Accounting for Decision Making (GSM5301)
Case Study Report 6
Prestige Telephone Company
GROUP 4 :
LECTURER : Dr. Ahmed Razman
HAND IN DATE : 26 March 2014
1.0 INTRODUCTION
2.0 Prestige Data Services is a subsidiary of Prestige Telephone Company, designed to perform data processing for the telephone company and selling computer services to other organizations. The subsidiary started operations in 1995 and has yet to experience a profitable month. Worse, its income was low enough to necessitate a report to shareholders by the end of 1996. Although Rowe was discouraged by results to date, he was reluctant to suggest to Bradley that Prestige Data Services be closed down or sold.
…show more content…
& Maintenance salaries + Administration salaries + Sales salaries + Sales promotion expenses + Corporate services
26.0 $(9,240 + 95,000 + 5,400 + 26,180 + 109.91 + 21,600 + 12,000 + 9,000 + 11,200 + 8,000 + 15,000)
27.0 = $212,729.91
28.0 The variable costs that are recognized in this case study are power ($4.69 per hour), part of the operations wages ($24 per hour), and materials costs ($27.91 per hour). Total variable cost per hour is equal to $56.60 per hour.
29.0 Breakeven Hours =
30.0 (Total Fixed Costs) – (Allowed Costs After Variable Costs of Intercompany Operations)
31.0
32.0 Contribution per Hour
33.0
34.0
35.0 Breakeven Hours =
36.0
37.0 =
38.0 =
39.0 ($212,729.91) – [$82,000 – (205 hours x $56.60)]
40.0
41.0 ($800.00 - $56.60)
42.0 142,332.91/743.40
43.0 191.46 hours
44.0
45.0 Conclusion:
46.0 191.46 hours at $800 per hour is equal to $153,168 of commercial revenue per month. Prestige Data Services has to achieve the commercial sales of $153,168 of computer use in order to achieve breakeven each month.
47.0
48.0
49.0
50.0 Question 3: Estimate the effect on income of each of the operations Rowe has suggested if Bradley estimates as follows:
51.0 Default Contribution Margin Model (based on Solution 2):
52.0
53.0 Per hour
54.0 Volume (hours)
55.0 Total
56.0 %
57.0 Revenue
58.0 $800.00
59.0
60.0
61.0
62.0 Variable expenses
63.0 ($56.60)
64.0
65.0
66.0
67.0 Contribution margin
68.0 $743.40
69.0 x
service to other companies and organizations. It was necessary for these two companies to be
Irrelevant Costs, Insurance (General Liability, Physical Damage, Workers Compensation, Health insurance), Security, Depreciation, Salaries Benefits, Bad Debt Expense, Permits, Rental Equipment, Payroll Taxes, Accounting Fees, Supplies, Computer Maintenance, Miscellaneous.
2. What is the total cost? How much of the total cost are labor costs? Capital costs?
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Accounting: Tools for business decision
Review of ABC Company and the directions it is targeting. The strategy of the company is to lift the expected sales in an aggressive fashion, with the expected end target being to triple the current levels. The plan is to push sales into the targeted range of $3 million within 3 years versus the current amount which sits at $1.2 million. We will identify the perceived risk factors that may impact this aggressive strategy and its successful execution. The following will be those risk factors:
Revenues and Direct Costs are as follows: $16,000,000 in total revenues, $9,833,155 in direct expenses, $6,166,845 in contribution margin, and 38.5% in percent of revenues. Their indirect costs are as follows: $1,200,000 in facilities costs, $1,600,000 in general overhead, and $2,800,000 in total overhead. This leaves the OP
In our second assumption, instead of using the cost of goods per cases in 1986, we try to use the percentage it counts in the total expenses which is 50.4% and to find the sales needed to break-even. The detail of the calculation is shown in the answer for questions d. The result is that 95,635, a little bit higher than the estimated sales of 90,000.
In January, Reyes Tool & Dye requisitions raw materials for production as follows: Job 1 $960, Job 2 $1,630, Job 3 $720, and general factory use $680. During January, time tickets show that the factory labor of $6,100 was used as follows: Job 1 $1,570, Job 2 $1,940 Job 3 $1,670, and general factory use $920. Prepare the job cost sheets for each of the three jobs. (If answer is zero, please enter 0, do not leave any fields blank.) Job 1 Date 1/31 1/31 Direct Materials 960 0 Job 2 Date 1/31 1/31 Direct Materials 1630 0 Job 3 Date 1/31 1/31 Direct Materials 720 0 0 1670 Direct Labor 0 1,940 Direct Labor 0 1570 Direct Labor
Explain the corresponding impact on total revenue for each of the three price ranges identified in part G.
Break-even Dollar Volume = Total Fixed Costs / Contribution Margin = $525,000 / 0.7111 = $738,282.40
2.) For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour.
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.)
(b) Calculate by how much the proposed addition will either increase or reduce operating income. Show all work.
Current funds allocated to advertising and sales promotion is 3% of net sales ($80,000,000) = $360,000
Variable Cost per Unit = ( $59,000 − $38,000 ) ÷ ( 3,000 − 1,250 ) = $12 per unit