Prestige Telephone Company Essay Essay Example

Prestige Telephone Company Essay Essay 1. Identify the costs that are relevant to the analysis to stop Prestige Data Servicess: Relevant costs in the analysis by Prestige Telephone Company determination to stop Prestige Data Services include: fixed costs which must be absorbed by the parent company ( Prestige Telephone ) upon shutdown ; outstanding Prestige Data Services debts ; costs of retraining maintained employees ; costs associated with outsourcing informations services antecedently provided by Prestige Data Services ; chance cost of utilizing infinite rented to Prestige Data Services ; selling costs attributed to geting extra Prestige Data Services clients ; costs of increasing promotional activities of Prestige Data Services. In add-on. Prestige Telephone Company should see the qualitative cost of reduced employee morale which may ensue upon closure of Prestige Data Services. We will write a custom essay sample on Prestige Telephone Company Essay specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Prestige Telephone Company Essay specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Prestige Telephone Company Essay specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Care costs 2. Justify why each of the costs in point 1 is relevant: The costs listed supra are all relevant because they each vary with the shutdown determination. ? Fixed costs which must be absorbed by the parent company ( Prestige Telephone ) upon shutdown: Payroll. charge. aggregations. and other corporate services were provided by Prestige Telephone in return for an sum from Data Services based on rewards and wages. These fixed costs allocated to Prestige Data Services must now be accounted for by the parent company.? Costss of retraining employees: If employees are retained by Prestige Telephone. rewards and wages that were antecedently incurred by the Data Services line will hit Prestige Telephone’s budget. Besides. new accomplishments will be required of employees retained by the company every bit good as attach toing preparation disbursals.? Costss associated with outsourcing informations services antecedently provided by Prestige Data Servicess: Prestige Telephone will still necessitate the services Prestige Data Services supply and therefore will necessitate to outsource them. Since Prestige Telephone was utilizing a monetary value cap based on estimated informations use in 1999. they were efficaciously acquiring discounted informations service rates from the subordinate. If Data Services is shut down. the company might incur much higher service disbursals.? The care cost is relevant because if Data Services is shut down the company will no longer incur this costs. therefore it needs to be considered as a cost the parent company can extinguish.? Opportunity cost of utilizing infinite rented to Prestige Data Servicess: If Prestige Telephone decides to close down the Data Services Company. the parent company will lose the $ 8000 monthly rental fee paid by the current subordinate. Additionally. Prestige Telephone must see the chance cost of leasing the infinite to another company or service that may supply them with more income.? If Prestige Data Services is shut down. selling costs attributed to geting extra Prestige Data Services clients and promotional activities will no longer be necessary.? Termination of Prestige Data Services employees as a consequence of shut down may cut down the morale of any maintained employees or employees of the parents company. Prestige might see reduced productiveness or increased turnover as a consequence. 3. Identify the costs that are NOT relevant to the analysis to stopPrestige Data Servicess: Costss non relevant to the determination are done for costs such as the costs of developing Prestige Data Service employees. investings in the IT substructure. and any owned Prestige Data Services Equipment. In add-on. the fixed part of the electricity costs is non relevant. Depreciation costs are besides non relevant. The rentals for computing machine equipment are non-cancelable and therefore may be considered sunk costs because Data Services is expected to cover the costs associated with the rentals prior to being shutdown. However if Prestige Data Services is unable to pay off the rentals. these costs will go relevant because the parent company. Prestige Telephone would be responsible for debts owed. 4. Justify why each of the costs in point 3 is NOT relevantFixed cost: Costss of equipment and fixtures are incurred whether or non Prestige Data Service continues to run. Even if the subordinate company is shut down. these fixed costs must still be taken into consideration. Some costs. such as electricity. whether used or non. will be charged for a certain basic sum every month and hence should non be considered relevant. Depreciation is non relevant because cost of equipment is a sunk cost. There is no important salvage value for the equipment. 5. Identify the grosss that are relevant to the analysis to stop Prestige Data Servicess: Grosss relevant to the analysis to stop the operation are commercial gross revenues gross which includes computing machine usage and other. 6. Justify why the grosss in point 5 are relevant:The grosss in point 5 differ across options. In other words. these grosss are straight tied to Prestige Data Services. If the production capacity of Prestige Data Services decreases to zero. all the gross ensuing from these operations will besides diminish to $ 0. which decreases the subsidiary’s part to its parent company. 7. Identify the grosss that are NOT relevant to the analysis to stop Prestige Data Services. The gross of Prestige Telephone and the gross from intercompany Gross saless are non relevant to the determination. 8. Justify why the grosss in point 7 are NOT relevant.As we explained in point 6. all grosss from Prestige Data Services will alter depending on the determination. As the production capacity is varied. all the grosss will change. These alterations show the expected overall consequence on net income. Gross at Prestige Telephone will non change based on the determination to close down Prestige Data Services because Prestige Telephone’s gross is non tied to the operations of the subordinate. From the position of the Parent Company. Intercompany Gross saless are a gross watercourse for the subordinate. but an equal cost to the Parent. therefore it doesn’t impact the balance sheet of the parent company. 9. Is Prestige Data Services truly a job to the parent company. Justify your reply. Prestige Data Service is non a job to the parent company. This is chiefly because: —Prestige Telephone will necessitate to absorb Prestige Data’s relevant fixed costs.—Prestige Telephone will hold to pay higher rates for services antecedently provided by Prestige Data Services. Regardless of possible sunk costs such as equipment rentals ( $ 95. 000 ) . Prestige Data Service positively contributes to the parent company. Additionally. if Prestige Data Services were to bear down Prestige Telephone the same rates ( $ 800 per service hr ) it charges for commercial services. the company would non be runing at a loss. If these commercial rates are considered competitory so the subordinate is salvaging its parent money. Furthermore. there are several schemes that can be implemented to increase the concern value of Prestige Data Services. such as cut downing computing machine use. 10. Fix monthly income statements for January. February. and March which back up your reply to item 9.