The current situation of Prestige Data Service revealed a few problems, which had mis-presented the performance of Prestige Data Service and misled the manager’s decision making.
First of all, the current accounting report did not reveal the real contribution made by Prestige Data Service to its parent company. According to the restriction of the state Public Service Commission, the average monthly charge for service by the subsidiary to the parent not exceed $82,000; therefore the intercompany work was only billed $400 per hour which was not on equal competitiveness with rivals in term of profits. If the subsidiary company charges $800 per hour as commercial sales, then the sales revenue and the contribution would largely enhance and make the company profitable compare to its current report.
Second, the quarterly report showed the total revenue hours of the Prestige Data Service consisted of approximate 61% of total hours, which meant that about 39% of the computer utilization hours is far under full utilization.
Furthermore, the costing approaches seemed not fair to subsidiary company according to its quarterly report. For example, the Prestige Data Services paid Prestige Telephone the corporate service based on wages and salaries each month. Those service were done by parent company personnel, it should be charged as monthly wages but a per hour expenses. Moreover, a charge for custodial service was paid by Data Service which should be an opportunity cost of parent company.
In addition, the Data Service confronted other problems as high fixed costs including high salary for personnel than expected, low return on investment and fewer customers than expected. Those problems would mean that both the subsidiary and parent company should review its current business strategy, especially the costing to reach the profitability.
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