Prestige Telephone Company
PRESTIGE TELEPHONE COMPANY
1.Identify the costs that are relevant to the analysis to discontinue Prestige Data Services:
Relevant costs in the analysis by Prestige Telephone Company decision to discontinue Prestige Data Services include: fixed costs which must be absorbed by the parent company (Prestige Telephone) upon shutdown; outstanding Prestige Data Services debts; costs of retraining retained employees; costs associated with outsourcing data services previously provided by Prestige Data Services; opportunity cost of using space rented to Prestige Data Services; marketing costs attributed to acquiring additional Prestige Data Services customers; costs of increasing promotional activities of Prestige Data Services. In addition, Prestige Telephone Company should consider the qualitative cost of reduced employee morale which may result upon shutdown of Prestige Data Services.
Maintenance costs
2.Justify why each of the costs in item 1 is relevant:
The costs listed above are all relevant because they each vary with the shutdown decision. ● Fixed costs which must be absorbed by the parent company (Prestige Telephone) upon shutdown: Payroll, billing, collections, and other corporate services were provided by Prestige Telephone in return for an amount from Data Services based on wages and salaries. These fixed costs allocated to Prestige Data Services must now be accounted for by the parent company. ● Costs of retraining employees: If employees are retained by Prestige Telephone, wages and salaries that were previously incurred by the Data Services line will hit Prestige Telephone’s budget. Also, new skills will be required of employees retained by the company as well as accompanying training expenses. ● Costs associated with outsourcing data services previously provided by Prestige Data Services: Prestige Telephone will still require the services Prestige Data Services supply and thus will need to outsource them. Since Prestige Telephone was
1.Identify the costs that are relevant to the analysis to discontinue Prestige Data Services:
Relevant costs in the analysis by Prestige Telephone Company decision to discontinue Prestige Data Services include: fixed costs which must be absorbed by the parent company (Prestige Telephone) upon shutdown; outstanding Prestige Data Services debts; costs of retraining retained employees; costs associated with outsourcing data services previously provided by Prestige Data Services; opportunity cost of using space rented to Prestige Data Services; marketing costs attributed to acquiring additional Prestige Data Services customers; costs of increasing promotional activities of Prestige Data Services. In addition, Prestige Telephone Company should consider the qualitative cost of reduced employee morale which may result upon shutdown of Prestige Data Services.
Maintenance costs
2.Justify why each of the costs in item 1 is relevant:
The costs listed above are all relevant because they each vary with the shutdown decision. ● Fixed costs which must be absorbed by the parent company (Prestige Telephone) upon shutdown: Payroll, billing, collections, and other corporate services were provided by Prestige Telephone in return for an amount from Data Services based on wages and salaries. These fixed costs allocated to Prestige Data Services must now be accounted for by the parent company. ● Costs of retraining employees: If employees are retained by Prestige Telephone, wages and salaries that were previously incurred by the Data Services line will hit Prestige Telephone’s budget. Also, new skills will be required of employees retained by the company as well as accompanying training expenses. ● Costs associated with outsourcing data services previously provided by Prestige Data Services: Prestige Telephone will still require the services Prestige Data Services supply and thus will need to outsource them. Since Prestige Telephone was