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Case16-2 Solutions - 1 Appraise the results of operations...

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1. Appraise the results of operations of Prestige Data Services Data is not a problem to Telephone. He needs to go beyond the operations summary and look at the costs and benefits to Telephone. Many of Data’s costs are not relevant to the analysis. Several items are unavoidable costs (equipment leases, depreciation), that Telephone would need to pay even if it closed Data. Others are corporate overhead allocated to Data by Telephone, including some that provide income to Telephone. If Telephone closed Data, the unavoidable costs would continue, but it would lose the benefit of Data’s direct and indirect contributions to Telephone. Relevant Income 68,787 78,435 82,975 Relevant Expenses paid by Data Rent 8,000 8,000 8,000 Custodial Services 1,240 1,240 1,240 Corporate Services 3,680 3,754 3,773 Telephone better off by … 81,706 91,429 95,988 2. Assume Intercompany demand at 205, what level of commercial hours will breakeven? Fixed Costs 211,202.37 210,360.07 211,029.26 LESS: CM (Intercompany) @ 205 Units 75,544.55 75,507.65 75,312.90 LESS: CM (Company Other) @ 205 Units 838.07 1,037.97 2,283.39
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Fixed Costs Remaining for CM (Commercial) 134,819.75 133,814.44 133,432.97
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