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Managerial Accounting
Case Studies Ch. 16 2
Presented by:
Group 1
Bobis, Nova Amor
Castro, Carl Francis
Pascual, Kate-Lyn
Prestige Telephone
Company
- Costs associated with outsourcing data services previously provided by Prestige Data
Services: Prestige Telephone will still require the services Prestige Data Services supply, thus will
need to outsource them. Since Prestige Telephone was using a price cap based on estimated
data usage in 1999, they were effectively getting discounted data service rates from the
subsidiary. If Data Services is shut down, the company might incur much higher service
expenses.
- The maintenance cost is relevant because if Data Sevices is shut down the company will no
longer incur this costs, thus it needs to be considered as a cost the parent company can
eliminate.
- Opportunity cost of using space rented to Prestige Data Services: If Prestige Telephone
decides to shut down the Data Services Company, the parent company will lose the $8,000.00
monthly rental fee paid by the current subsidiary. Additionally, Prestige Telephone must consider
the opportunity cost of renting cost of renting the space to another company or service that may
provide them with more income.
3.) Identify the costs that are NOT relevant to the analysis to discontinue Prestige
Data Services:
Costs not relevant to the decision are sunk costs such as the costs of training
Prestige Data Services employees, investments in the IT infrastructure, and any
owned Prestige Data Services Equipment. In addition, the fixed portion of the
electricity costs is not relevant. Depreciation costs are also not relevant.
The leases for computer equipment are non-cancelable and therefore may be
considered sunk costs because because Data Services is expected to cover the
costs associated with the leases prior to being shutdown. However if Prestige Data
Services is unable to pay off the leases, these costs will become relevant because
the parent company, Prestige Telephone would be responsible for debts owed.
10
7.) Identify the revenues that are NOT relevant to the analysis to
discontinue Prestige Data Services.
11
12
Revenues
Intercompany sales
Commercial Sales
Net Revenue
January
February
March
$ 82, 400.00
$ 72, 400.00
$ 89, 200.00
107, 641.00
117, 184.00
123, 085.00
$ 190, 041.00
$189,584.00
$ 212, 285.00
$ 1, 633.00
$ 1,592.00
$ 1, 803.00
29, 496.00
29, 184.00
30, 264.00
9,031.00
8,731.00
10, 317.00
7, 909.00
7, 039.00
8, 083.00
15, 424.00
15, 359.00
15, 236.00
$ 63, 493.00
$ 61, 905.00
$65, 703.00
$ 126, 548.00
$ 127, 679.00
$ 146, 582.00
Less: Variables
Costs
Power
Wages & Sal.-Optns
Materials
Sales Promotions
Corporate Services
Total Variable Costs
Contribution
Margin
13
January
Contribution Margin
February
March
$ 126, 548.00
$ 127, 679.00
$ 146, 582.00
$ 9, 240.00
$ 9, 240.00
$ 9, 240.00
126, 580.00
126, 580.00
126, 580.00
12, 000.00
12, 000.00
12, 000.00
9,000.00
9,000.00
9,000.00
11, 200.00
11, 200.00
11, 200.00
$ 168, 020.00
$ 168, 020.00
$ 168, 020.00
$ (41, 472.00)
$ (40, 341.00)
$ (21, 438.00)