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Prestige Phone

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Submitted By rolltide117
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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 $800 in order to maximize revenue. C) The maximum that Prestige could spend and still leave Prestige Data Services with no loss is $52,060. D) If the company reduces operations to 16 hours on weekdays an eight hours on Saturday, it would result in revenues of $88,320 (110.4 hours).

The best option for Prestige Data Services is to maintain the original price in order to

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