Prestige Telephone Company
1.
Prestige Data Services apparently has not lived up to its parent company’s expectation. However, based on the numbers, the Prestige Data Services appears to be rather potential after just two years of performance. Its revenue hours sold to outside firms have being growing, and the majority of Prestige Data Services’ costs are fixed costs, e.g., rent, custodial services, computer lease, maintenance, etc.
In order to determine whether or not the subsidiary is indeed “too good to give up,” two scenario were calculated as follows to demonstrate the financial impact to the Prestige Telephone:
A
To keep Prestige Data Service in operation,
Prestige Telephone will incurre:
Expense
Lost of Subdiary
Revenue Earned
Space
Corporate Service
Total Expense
B
82,000
21,438
Service fee paid to Prestige Data Service
Net Loss in March
Fee paid by Prestige Data Service
9,240
15,236
$
78,962
To close down Prestige Data Service,
Prestige Telephone will incurre:
Expense
Sunk Cost
178,400
4,560,000
Total Expense
$ 4,738,400
Incresed cost A v.s. B
Data service fee if purchased from outside firm
4-year nonecancellable computor equipment lease
$ 4,659,438
Retaining Prestige Data Service seems a better idea.
223*800
95000*12*4
2.
Break-even Formula: Total Fixed Costs/ (Unit Price - Unit Variable Cost)
The company demand for service is 205 hours per month. These hours are billed at $400 per hour. This would create revenue of $82,000. This $82,000 can cover part of the fixed costs, as shown in the formula.
Total Fixed Cost:
Rent $8,000
Custodial $1,240
Computer Leases $95,000
Maintenance $5,400
Computer Equipment $25,500
Office Equipment and Fixtures $680
Systems Development & Maintenance $12,000
Administration $9,000
Sales $11,200
$168,020
Break-Even Hours:
Break-Even Dollars: 141.09*800 = $112,872
Unit Price:
Commercial Billing per Hour $800
Unit Variable Cost:
January
$29,496
Prestige Data Services apparently has not lived up to its parent company’s expectation. However, based on the numbers, the Prestige Data Services appears to be rather potential after just two years of performance. Its revenue hours sold to outside firms have being growing, and the majority of Prestige Data Services’ costs are fixed costs, e.g., rent, custodial services, computer lease, maintenance, etc.
In order to determine whether or not the subsidiary is indeed “too good to give up,” two scenario were calculated as follows to demonstrate the financial impact to the Prestige Telephone:
A
To keep Prestige Data Service in operation,
Prestige Telephone will incurre:
Expense
Lost of Subdiary
Revenue Earned
Space
Corporate Service
Total Expense
B
82,000
21,438
Service fee paid to Prestige Data Service
Net Loss in March
Fee paid by Prestige Data Service
9,240
15,236
$
78,962
To close down Prestige Data Service,
Prestige Telephone will incurre:
Expense
Sunk Cost
178,400
4,560,000
Total Expense
$ 4,738,400
Incresed cost A v.s. B
Data service fee if purchased from outside firm
4-year nonecancellable computor equipment lease
$ 4,659,438
Retaining Prestige Data Service seems a better idea.
223*800
95000*12*4
2.
Break-even Formula: Total Fixed Costs/ (Unit Price - Unit Variable Cost)
The company demand for service is 205 hours per month. These hours are billed at $400 per hour. This would create revenue of $82,000. This $82,000 can cover part of the fixed costs, as shown in the formula.
Total Fixed Cost:
Rent $8,000
Custodial $1,240
Computer Leases $95,000
Maintenance $5,400
Computer Equipment $25,500
Office Equipment and Fixtures $680
Systems Development & Maintenance $12,000
Administration $9,000
Sales $11,200
$168,020
Break-Even Hours:
Break-Even Dollars: 141.09*800 = $112,872
Unit Price:
Commercial Billing per Hour $800
Unit Variable Cost:
January
$29,496