Prestige Data Service
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 all these costs are compared this will give a clear indication of the more profitable option and this will give good guidance in decision making
II) Assuming the company demand for service will average 205 hours per month, what level of commercial sales of computer use would be necessary to break even each month?
Firstly, let’s have a look at the reports which Rowe received from the Prestige Data Services to do the Cost -Volume – Profit analysis. The cost or expenses listed in the Exhibit 2 consists
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 all these costs are compared this will give a clear indication of the more profitable option and this will give good guidance in decision making
II) Assuming the company demand for service will average 205 hours per month, what level of commercial sales of computer use would be necessary to break even each month?
Firstly, let’s have a look at the reports which Rowe received from the Prestige Data Services to do the Cost -Volume – Profit analysis. The cost or expenses listed in the Exhibit 2 consists