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Prestige Telephone (Case #2)
Due at the beginning of the first class after Thanksgiving break (12/1 or 12/2). Target length is two pages of discussion supplemented by tables (as needed).
YOU MUST TYPE THIS – DO NOT HAND IN A HANDWRITTEN PROJECT!
Modified / revised case questions (use these in conjunction with the questions in the case). 1. Read the case question as presented (page 3 of the case). Alternative interpretations for this question are, “Does Prestige Data Services cost Prestige Telephone money?” or “Does Prestige Telephone absorb the loss that Prestige Data Services incurs?”
How would you present an alternative accounting statement for Prestige Data Services? Here, imagine you are the Data Services manager planning to meet with the Prestige Telephone board of directors.

An: By analysis the Prestige Data Services Summary Results of operations (Exhibit 2), the costs from PDS is decreased from January to March. And in March, DPS does not costing PT money. | January | February | March | Net Income | (41,472) | (40,341) | (21,438) | Fixed expense: | | | | Rent | 1240 | 1240 | 1240 | Custodial service | 9240 | 9240 | 9240 | Computer lease | 95000 | 95000 | 95000 | maintenance | 5400 | 5400 | 5400 | | 69,408 | 70,539 | 89,442 |

The table above shows that PDS’s net income increasing incrementally. This subsidiary has potential to earn money to parent company in the future. So, keep PDS is better for Prestige Telephone company.

2. Respond to the case question, but think carefully about how the intercompany charge affects your breakeven analysis. (Hint: the intercompany charge at 205 hours of service is similar to a ‘contra fixed cost’.)

An: power = (1803-1592)/ (401-348) = $3.98 rand to 4 Salaries for operations only = (30264-29184)/ (361-316) =$24 Total VC =4+24 =$28/hr B/E hours =total FC-VC of intercompany operations/ contribution per hour = {197820-[82000-(205*28)]}/ (800-28) =157.5 hours 157.5 hours @$800/hr =$126000 of commercial revenues each month.

3. For clarification: treat each situation independently. In other words, compare 3a’s change (a price increase) to the current ‘status quo’; then compare 3b’s change (a price decrease) to the current ‘status quo’, etc.

What is the best option for Prestige Data Services?

An: a) old demand =138 hrs New demand =138*0.7 =96.6 hrs Contribution original =106,536 Contribution new =96.6 *(1000-28) = 93,895.2 So, better keep original pricing. b) Old demand =138 hrs demand new =138*1.3 =179 hrs Contribution original =106,536 Contribution new =179*(600-28) =102,388 So, better keep present pricing.

c) New contribution =179*(800-28) =138,188 Contribution original =106,536 Difference equals to 31,652, the maximum we could spend on advertising to earn the new sales.

d) Demand original =138 hrs Demand new =110 hrs Contribution original =106,536 Contribution new =110*(800-28) =84,920 So, better keep original pricing. 4. Replace the current question with this one: “How might you change performance incentives(dong ji) at Prestige Data to improve future e operations?” Note: question 4 in the case is distinct from the preceding question.

An:

5. If you were a consultant(guan wen), what would you recommend to Mr. Rowe and Ms. Bradley regarding(about) the future of Prestige Data Services?

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