Prestige Telephone Company - Question 1

Question #1: Appraise the results of operations of Prestige Data Services. Is the the subs subsiidiary ary real eally a probl oblem to Pres Presttige Telep elepho hone ne Company? Consider carefully the dierences beteen reported cost costs s and and cost costs s rele releva vant nt fo for r deci decisi sion ons s that that Dani Daniel el !o !oe e is considering. As advised by Bradley, even Prestige Data Services hasn’t been incurring income; it has hoever been co!ing u! ith demands o" the Prestige ele!hone $om!any and rendering increasing hours to commercial commercial users based on the %irst Quarter 1&&' data( As "or the costs, e can only ma)e decisions based on variable costs since cannot ma)e *nal ad+ustments "or the *ed ones( he "olloing as!ects sho that )ee!ing the subsidiary ill )ee! bene*tting the !rimary( 1( -evenue -evenue "or the Prestige Prestige ele!hone $om!any ." /r( /r( -oe decides to close don or sell the subsidiary, the !rimary ouldn’t get any etra revenue 0i(e( s!ace costs and cor!orate services that ill !romote their ste! toard deregulation and reduce the need "or rate increases( 2( 3!ens 3!ense e "or data data !rovi !rovider ders s .nstead o" )ee!ing the !rimary’s monthly total e!ense "or data services u! to 452,666 0the amount Prestige Data Services is charging, they ould have !aid "or 4178,666 0i(e( 269 hours  4566hour < the average time and the commercial rate that is 266= o" the original amount( his can be increased i" the !rimary ould need more than 269 hours( s .t is observed in 3hibit 2 that the revenue is rising; hence, the loss is decreasing as the >uarter ends( ." given a chance to lay?o@ some sta@ or ait until the lease has been li"ted, it ould be an o!!ortunity to see the "ull !otential o" the subsidiary(