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 (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) = $ 1.055(400a+800b) *0.055 = (9,241+9,184+12,685) / (190,041+189,584+212,285)
ii. Fixed costs
Space costs = Rent + Custodial services = 8,000 +1,240 = $9,240
Equipment costs = Computer leases + Maintenance = 95,000 +5,400= $100,400
Depreciation = 25,500+680= $26,180
Fixed wages and salaries = System development and maintenance + Administration + Sales = 12,000 +9,000+11,200 = $32,200
* Total fixed costs = $ 168,020
iii. Variable costs
Power = $5(a + b)
Sales
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) = $ 1.055(400a+800b) *0.055 = (9,241+9,184+12,685) / (190,041+189,584+212,285)
ii. Fixed costs
Space costs = Rent + Custodial services = 8,000 +1,240 = $9,240
Equipment costs = Computer leases + Maintenance = 95,000 +5,400= $100,400
Depreciation = 25,500+680= $26,180
Fixed wages and salaries = System development and maintenance + Administration + Sales = 12,000 +9,000+11,200 = $32,200
* Total fixed costs = $ 168,020
iii. Variable costs
Power = $5(a + b)
Sales