Prestige Telephone Company
Liam Hennessy, Xinyi Zhang, Yuan Chai, and Anthony Saba
1. Reasons for Continuing Losses
Prestige Data Services’ main problem is that they have too many available hours that are not generating any revenue. In the first quarter of 2003, they have an average of 176 available hours per month of available hours. Its operations exact a huge amount of fixed costs to cover. If they could find more commercial customers for the available capacity, they could increase their commercial sales revenue by as much as $140,880 (176*800). In addition, they are also creating unnecessary expenses by having to pay all kinds of expenses during these unprofitable hours.
2. Breakeven Point of Commercial Sales …show more content…
According to the facts presented in the case, we prepare in the following a comparative income statement to show the effect of “Keep” or “Drop” of Prestige Data Services on the overall income or loss of both company as a whole:
| | Drop | Keep | Difference | Revenues | | | | | | Total Revenue | 0 | 591,910 | (591,910) | | Expenses | | | | | | Space costs | 27,720 | 27,720 | 0 | | Rent | 24,000 | 24,000 | 0 | | Custodial services | 3,720 | 3,720 | 0 | | | Equipment costs | 285,000 | 301,200 | 16,200 | | Computer leases | 285,000 | 285,000 | 0 | | Maintenance | 0 | 16,200 | 16,200 | | | | |