Prestige Telephone Company Essay

2163 Words Jan 6th, 2009 9 Pages
Title: PRESTIGE TELEPHONE COMPANY: A CASE ANALYSIS

Point of View: Management Consultant

I. Issues and Concerns:

■ In 1999, the Public Service Commission encouraged all public utilities to: 1. seek new sources of revenues and profits since heading towards deregulation; and 2. To reduce the need for rate increases.

■ Prestige Telephone Co. realized that a centralized service that could plan, control, and account for its own operations could benefit themselves and other businesses in the region.

■ Utilize the current telephone circuits and sell extra computer time not needed by the telephone company.

■ Prestige Data Services performed data processing for
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To segregate fixed and variable elements of mixed costs: Power cost and Operations – Salaries and Wages.

High-Low method

On operations: Wages and salaries

Step 1: Choose the highest and lowest activity levels

Cost Revenue hours High $30,264.00 361 Low 29,184.00 316

Step 2: Get the differences between the highest and lowest

Cost Hours High $30,264.00 361 Low 29,184.00 316 ---------- ----- Differences $ 1,080.00 45 hrs.

Step 3: Determine the variable rate per hour. Where b = variable rate/hr

b = Difference in cost ------------------ Difference in Activity Level

= $ 1,080.00 ----------- 45 hrs

Step 4: Determine the total amount of fixed cost (a=y-bx)

Highest Lowest
Total Cost (y) $30,264.00 $29,184.00 less: VC (bx) 8,664.00 7,584.00 ---------- ----------
Total Fixed Cost (a) $21,600.00 $21,600.00

361 hrs x 24 = $8,664.00 361 hrs x 24 = $7,584.00
On Power Costs

Cost Hours
Highest $1,803.00 401
Lowest 1,592.00 348 --------- -----
Differences $ 211.00 53

b = 211 --- 53

Variable rate/hr

Solution 2. Break-even @ 205 hrs/month company demand for service.

Assumptions/Estimates:
- materials are offset by revenue, hence excluded from analysis
- sales promotions @ $8,000.00/month
- corporate services @ $15,000.00/month

Summary of FC and VC:

Fixed Costs

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