prestige
1.0 INTRODUCTION
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 perform data processing for the telephone company and to sell computer services to other companies and organizations. The company was opened to bring the additional revenue in order to offset the increases of telephone rate. Throughout two years of being in operation the subsidiary has been unprofitable.
2.0 QUESTION 1
Appraise the results of operations of Prestige Data Services (PDS). Is the subsidiary really a problem to Prestige Telephone Company (PTC)? Consider carefully the differences between the reported costs and costs relevant for decisions that Daniel Rowe is considering.
Answer:
The current data indicate that the PDS is operating in loss. Based the presented data, yes, PDS is a problem to PTC at this point of time. There are many major costs being absorbed by PTC while charging a sum towards corporate services to PDS. However the way data was collected, costs calculated and presented could be different from the actual reality. Moreover the trend in the 3 months is that the commercial sales is going up (marginally though) and losses are keep reducing. Also it is reported that PDS is operating with un-used capacity, which might be another reason for the projected loss. Though PDS is in loss currently, there are several ways the company might be profitable when the cost accounting method can be re-structured. The increases of marketing activities in order to increase sales can be held by using free capacity available. Reducing the staff count by reducing the number of shifts, could see PDS being profitable in the long run.
If Rowe decided that PDS be closed down or sold, the decision has to be based on the ROI and the opportunity cost. By closing down PDS, PTC will lose the customer sales, which is the opportunity costs the lost (customer)
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 perform data processing for the telephone company and to sell computer services to other companies and organizations. The company was opened to bring the additional revenue in order to offset the increases of telephone rate. Throughout two years of being in operation the subsidiary has been unprofitable.
2.0 QUESTION 1
Appraise the results of operations of Prestige Data Services (PDS). Is the subsidiary really a problem to Prestige Telephone Company (PTC)? Consider carefully the differences between the reported costs and costs relevant for decisions that Daniel Rowe is considering.
Answer:
The current data indicate that the PDS is operating in loss. Based the presented data, yes, PDS is a problem to PTC at this point of time. There are many major costs being absorbed by PTC while charging a sum towards corporate services to PDS. However the way data was collected, costs calculated and presented could be different from the actual reality. Moreover the trend in the 3 months is that the commercial sales is going up (marginally though) and losses are keep reducing. Also it is reported that PDS is operating with un-used capacity, which might be another reason for the projected loss. Though PDS is in loss currently, there are several ways the company might be profitable when the cost accounting method can be re-structured. The increases of marketing activities in order to increase sales can be held by using free capacity available. Reducing the staff count by reducing the number of shifts, could see PDS being profitable in the long run.
If Rowe decided that PDS be closed down or sold, the decision has to be based on the ROI and the opportunity cost. By closing down PDS, PTC will lose the customer sales, which is the opportunity costs the lost (customer)