...I. SUMMARY OF THE CASE Prestige Telephone Company is a public utility business. Since it is operated as a public utility, it is subject to the regulations of the Public Service Commission, as such, the rates charged by Prestige Telephone Company for telephone service could not be changed without the approval of the Public Service Commission. The state Public Service Commission had encouraged all public utilities under its jurisdiction to seek new sources of revenue and profits as a step toward deregulation and to reduce the need for rate increase, which higher costs would otherwise bring. In 1995, The Prestige Data Services started its operation as a subsidiary of Prestige Telephone Company. It is established to perform data processing for the parent company and to sell computer service to other companies and organizations. From the start of its operation, Prestige Data Services experienced several problems, to wit; delayed deliveries of equipment, personnel commanded higher salaries and most importantly, customers were lesser than the earlier estimates. By the end of 1996, the company had a very low income that revealed the lowest Return on Investment in seven years. Because of this, Daniel Rose, the president of Prestige Telephone Company, felt it was time to reassess Prestige Data Services. The reports for the quarter revealed a persistent problem; available hours, which were unprofitable, remained HIGH. Revenue and cost data were summarized in the quarterly report on results...
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...PRESTIGE TELEPHONE COMPANY . Assignment The purpose of this case is to give you an opportunity to exercise your CVP analysis skills in a mixed non-profit/profit service context. As the controller of Prestige Telephone Company, you have been asked for an analyses of the 1997 first-quarter operating results for Prestige Data Services (a fully-owned subsidiary) and possible alternative courses of action to improve performance of Prestige Data in the future. Write a memo to Mr. Rowe (President, Prestige Telephone Company) and Ms. Bradley (Manager, Prestige Data Services) summarizing your analysis and recommending a course of action for Prestige Data Services. Mr. Rowe is considering four different course of action to improve the performance of Prestige Data Services. Discuss each of the options and the outcome you would predict from choosing that option. In addition to these four options, also discuss (1) the change in operating income you would expect for Prestige Telephone Company if Prestige Data Services was shut down, and (2) the number of hours Prestige Data Services needs to sell to outsiders to break even (as noted in guidance question #3 below). You will need to make some assumptions to proceed with your estimates --- you must describe and justify those assumptions. You must include well-labeled exhibits that support your assumptions, analyses and conclusion. Finally, suggest changes to the reports provided to Mr. Rowe for decision-making. The following...
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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. ...
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...Case Study – Prestige Telephone Co. Company Profile Prestige Data Services is a subsidiary of Prestige Telephone Company, a public utility. They are a computer data service company that does data processing for the parent company in order to sell computer services. The company was opened in order to bring in additional revenue in order to offset increases in telephone rate increases. Throughout the three years of being in operation the subsidiary has been unprofitable. Case Question #1 Assuming Prestige Telephone’s demand for services will average 205 hours per week, what level of commercial sales of computer use would be necessary to break even each month? Given this analysis, is the subsidiary really a problem to Prestige? Solution Based on the breakeven analysis the subsidiary is a problem to Prestige. They are currently operating at an average demand of 205 hours per month. They need to operate at 1116.19 hours in order to break even. The additional, unexpected costs incurred along with the difficulty in finding customers have resulted in the subsidiary being unprofitable and unsustainable. Without bringing in additional customers to reach their breakeven point they should move forward with closing the subsidiary. Table 1.1 Month | Jan | Feb | March | High | Low | CM | Total revenue hrs | 329 | 316 | 361 | 361 | 316 | | Power | $1,633 | $1,592 | $1,803 | $1,803 | $1,592 | $4.69 | Operations | $7,896 | $7,584 | $8,664 | $8,664 | $7,584 | $24.00 | ...
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...(PDS) was a subsidiary of PrestigeTelephone (PT) Company.PDS -Data processing for the telephone companies & soldcomputer services to other companies. * Yet to experience profit. * Manager -More time required for business to become profitable. * President -Reduce the drain in company resources. Objectives * Analyze the results of operations. * Understand the economics of a business. * Forecast the potential change in income with each alternativesolution. * Understand cost information reporting. Issues * To continue or stop Prestige Data Services operation or separate as stand-alone entity from parent company since it isnot generating profit. * Consider changes in pricing or promotion that might improve profitability. * Reduce company resources wastage if any. * Reduce service hour from 24 hour to 2 shift per day. Question1 Solution * Non-cancelable leases on computer equipment havefour more years to run. * If Prestige shuts down the subsidiary it needs tooutsource data services from an outside vendor almost double the cost to present system. * Add back the depreciation (non-cash) the net lossconvert into profit in the month of March. * $800 per hour is acceptable price. * Opportunity costs rather than reported or historicalcosts should be used. And Prestige Data Services isnot really a problem to Prestige Telephone Co. * Reported cost includes total cost i.e. variable costand fixed cost. But in...
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...Case Analysis: Prestige Telephone Company Liam Hennessy, Xinyi Zhang, Yuan Chai, and Anthony Saba 1. Reasons for Continuing Losses Prestige Data Services’ main problem is that they have too many available hours that are not generating any revenue. In the first quarter of 2003, they have an average of 176 available hours per month of available hours. Its operations exact a huge amount of fixed costs to cover. If they could find more commercial customers for the available capacity, they could increase their commercial sales revenue by as much as $140,880 (176*800). In addition, they are also creating unnecessary expenses by having to pay all kinds of expenses during these unprofitable hours. 2. Breakeven Point of Commercial Sales & Evaluation of the Suggested Options (Questions #2 and #3 attached to the case) Before starting to answer these two questions, it is more than necessary that we get the formula for Prestige Data Services’ net income (loss), even they will not be very exact. If we combine the data in each category in Exhibit 2 (such as Intercompany sales, Rent, and Operations, etc.) as a whole, and let a = Intercompany revenue hours, and b = Commercial revenue hours, then we can derive the following revenue and cost formulae of Prestige Data Service in each month: i. Revenues Intercompany revenues = $400a Commercial revenues = $800b Total revenues = $400a+$800b+$0.055(400a+800b) Other revenues = $0.055(400a+800b) ...
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...Prestige Telephone- Case #2 1. I would present an alternative accounting statement to Prestige Data Services by adjusting the net income due to the fixed expenses of rent and custodial services that are provided in the original Prestige Data Services Summary Results of Operations, First Quarter 2003. Although it appears that the company is suffering great losses, it is necessary to remove the fixed, sunk costs in order to get the adjusted net income. These sunk costs are costless to Prestige Telephone Company, and they could not really be making this money any other way. The adjusted net income is described as follows showing that the loss is almost cut in half during March. Therefore, Prestige Data Services is not costing Prestige Telephone Company money because the loss is not as severe as it seems. January February March Net Income (Loss) (41,472) (40,341) (21,438) Fixed Expenses 9,240 9,240 9,240 Adjusted Net Income (32,232) (31,101) (12,198) (800 – VC)* hours – [ FC – 82,000 ] = Breakeven Point 2. 3. A) I. 138*0.7=96.6 96.6*1,000= $96,600 II. Revenue was originally averaging around $110,400 when the price was $800. Therefore, if the price was increased, revenues would be decreased by $13,800 so Prestige Data should keep the price of $800 in order to maximize revenue. B) I. 179.4*600= $107,640 II. By reducing the price to $600, this would also decrease revenue by $2,760 so Prestige should once again leave the price at...
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...Prestige Telephone Company Case Analysis: Prestige Telephone Company Liam Hennessy, Xinyi Zhang, Yuan Chai, and Anthony Saba 1. Reasons for Continuing Losses Prestige Data Services’ main problem is that they have too many available hours that are not generating any revenue. In the first quarter of 2003, they have an average of 176 available hours per month of available hours. Its operations exact a huge amount of fixed costs to cover. If they could find more commercial customers for the available capacity, they could increase their commercial sales revenue by as much as $140,880 (176*800). In addition, they are also creating unnecessary expenses by having to pay all kinds of expenses during these unprofitable hours. 2. Breakeven Point of Commercial Sales & Evaluation of the Suggested Options (Questions #2 and #3 attached to the case) Before starting to answer these two questions, it is more than necessary that we get the formula for Prestige Data Services’ net income (loss), even they will not be very exact. If we combine the data in each category in Exhibit 2 (suchas Intercompany sales, Rent, and Operations, etc.) as a whole, and let a = Intercompany revenue hours, and b = Commercial revenue hours, then we can derive the following revenue and cost formulae of Prestige Data Service in each month: i. Revenues Intercompany revenues = $400a Commercial revenues = $800b Total revenues = $400a+$800b+$0.055(400a+800b) Other revenues = $0.055(400a+800b)...
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...Prestige Telephone Company case study In 1999, the Government encouraged public utilities to seek new sources of revenues and profits to reduce the need for rate increases to consumers of telephone services. Prestige Telephone Co. (PTC) considered that a centralised data provider service could be a profitable use of excess hours from existing infrastructure. Prestige Data Services (PDS) performed data processing for the telephone company and sold computer services to other companies and organizations. PTC believed that a profitable subsidiary would reduce pressure for telephone rate increases. After a number of years of delivering losses, PDS believes that more time should be given and that a profitable business was possible. The fundamental problem of Prestige Data Services is that they have too many available hours that are not generating revenue. In the first quarter of 2003, they have an average of 176 unused hours per month, based on current charge rates, this represents an opportunity for additional revenue of over $140,000 per month within the existing infrastructure and resourcing structure. Part a - Learning outcomes is the understanding of the following in this case study: • Incremental Cost Analysis – understanding of the change that a company experiences within its balance sheet due to one additional unit of production. • Return on Investment – how much revenue is earned from the investment PTC has made into the data company • Opportunity...
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...indicator that something beyond a Bachelor’s degree is needed. A potential stepping stone beyond a Bachelor’s degree is an MBA, which opens up a great deal of opportunity compared to a Bachelor’s. Many reasons exist for an MBA to be sought out and why a bachelor’s just “Ain’t enough.” Some of the top reasons to pursue an MBA are that a Bachelor’s degree does not provide the potential to make enough money, give the education to be marketable enough, or give enough prestige to the degree holder. A study in the Journal of Marketing for Higher Education led by Lynn Dailey, MBA, PhD, marketing professor at Capital University, Columbus, OH, showed that career advancement, financial security, and elevated social status/prestige (see Table 1) are within the top 5 reasons to pursue an MBA (Dailey 148). Because of the current trend and these economical times, a Bachelor’s degree is just not enough. Pursuing and obtaining an MBA is an excellent way to make more money in the long run, to make one more marketable, and to give one more prestige than with a bachelor’s degree. One of the top reasons heard most for the pursuit of an MBA is for the potential to make more money, basically money in one way or another. The ability to leverage an increase in pay or to make a higher wage over time is a glamorous motive to pursue an MBA. Although the amount of pay usually correlates with the amount of work experience before obtaining the MBA, nonetheless; it still greatly influences the future potential....
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...PRESTIGE TELEPHONE COMPANY In deciding whether to continue, discontinue or sell a subsidiary company, we should consider the benefits and disadvantages of each option. We gauge the contribution of a subsidiary not only by looking at its profitability but also the advantage it can give to the parent company particularly in reducing its costs. Having a low profitability or even a net loss does not necessarily mean that the decision of retaining the subsidiary is wrong. Separating the relevant costs from the irrelevant costs helps the parent company determine how the subsidiary can be a factor in its overall operation. We may not know, but continuing could most likely be the best decision. Identifying cost objects and cost drivers are essential in determining the price, profit and breakeven levels of a firm. Differentiating fixed costs from the variable costs is also very important. Subtracting the variable cost from the selling price (or total revenues minus total variable costs) will give us the contribution margin which “contributes” to recovering the fixed costs, and the excess of which will increase the operating income of the company. Cost-Volume-Profit (CVP) analysis is very helpful in making sound business decisions for the short term, as well as for long-range planning, particularly in this case for product features and pricing. For a company to avoid operating losses, like in the case of Prestige Data Services, the managers should be interested in looking...
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...Flare Fragrance Company, Inc is of the most successful and the leading producers of Women’s fragrance in U.S. They are also No.4 player in the U.S. Women’s fragrance market. They are only concentrating on the women products like perfumes. Due to recession they are force to face difficulties and challenges in company’s growth. Problem Identification The important problem that faced by the Flare Fragrances Company is its growth rate. In 2007 they have the growth rate of 12%. But compared to 2007 they have only 2% growth rate in 2008. The difficult environment situations are created growth challenge for this company. Another problem facing that they are only best sellers in the mass market only. Their sales are not good in prestige department stores, drugstore chains and other channels including internet also. Alternative Scenarios After the completion of market research by the consulting group, Arlmont Associates giving two options to increase the growth of Flare Fragrance Company, Inc in 2009. First one is increase the effort in drugs store channels and the other one is introduce a new perfume brand Savvy. After considering all factors we can select any one of the following option. • Expansion of business into Drugstores Channels • Launching a New Brand Savvy • Launching a Premium Brand Targeting at Prestige Group Analysis When implement the expansion of drug store channel, there is a chance of damage the relationship...
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...Text Preview 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 provided are relevant to make the decision at hand, the data has to satisfy the following criteria for it to be a relevant data. •It has to be an accepted future revenue or cost, •It must have an element of difference among the alternatives The future alternative may be to short down the site but some costs need to be considered- the cost of getting these services from another company, the loss of the corporate service revenue. Also there are benefits to be considered if this subsidiary is not existing, the vacated space could be used for another profitable purpose, since the parent company provide some services to the Data services, these services can be canceled, the employees can also be reduced thereby saving on labour costs. If...
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...CASE BACKGROUND • Prestige Telephone Company (PTC) is the parent company of Prestige Data Services (PDS) • PDS provides data services to its parent company as well as other companies willing to hire its services • It is wholly owned by PTC, but runs as a separate business entity, so each pays the other for services received • It was conceptualized in 1994, and started operations in 1995 • Daniel Rowe, president of PTC, was the one who pitched PDS, and believes it could be a profitable business • Since its inception, PDS has never been profitable, having multiple problems since the company’s launch • Susan Bradley, manager of PDS, believes the company only needs more time to be profitable • The case starts 1997, two years after the company was founded • PDS is separate entity from PTC, and is unregulated by the Public Service Commission • PTC, being a public service, is regulated • Services are offered to commercial customers 24 hours a day on weekdays, and 8 hours on Saturdays • Maintenance is done by an outside contractor • Computers are offline 8 hours each work for maintenance • PDS cannot charge PTC more than $82,000 (1994 estimate), as decreed by the Public Services Commission • Intracompany work is billed at $400 an hour (to meet $82,000 limit) • Work done for other companies is billed at $800 • Computer equipment were acquired by lease and purchases, with leases to run for 4 years ...
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...to those whose aim is to harm people of common good. Statutes have been enacted to prohibit certain unhealthy practices creeping into society and setting wrong precedents in normal human relationship. The law steps in and punishes those who try to create wrong ideas of community good and so it is looked upon as the only tool that can bring to book wrong action. Maria brought the display and was refused to display it, when she wrote to the headquarter and she was terminated. Now she should proceed like this, either she should write to somebody responsible for handling the human issues or she can go to some civil or district court. 2. At Prestige Motors, Muslim employees request to pray on their personal rugs on the factory floor during breaks. Prestige states this is disruptive to the work environment. Instead, Prestige assigns them space in the cafeteria. Co-workers complain that the Muslims enunciation of their prayers is disrupting...
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