Prestige Telephone Company Case

Prestige Telephone Company:

To:

From:

CC:

Date:

RE:

SUMMARY

Introduction Paragraph (purpose of the memo)

Prestige Data Services’ Problem

Prestige Data Services is continuing to report losses in the first quarter of 2003 because of inefficiencies in operations which include delayed equipment delivery, underestimation of personnel salaries and difficulty in finding customers. PDS currently offers 24 service hours every weekday and 8 hours on Saturday to commercial customers; however, they still have high number of available hours that generate no revenue. They also have to take the computer off-line for 8 hours each week for routine maintenance. Service capacity is also limited as PTC’s average monthly charge for services cannot exceed $82,000. This has caused PTC to have the lowest return on investment in seven years. Now Daniel Rowe wants us to decrease PDS’ losses so we can increase the PTC’s profit and maximize revenue.

ANALYSIS:

Cost-Volume Profit Analysis for Four Alternatives

1. Increasing price for commercial customers to $1000 per hour will reduce demand by 30%. We assume base month is March because it represents the most recent situation and therefore net profit change is -$12,640.80.

2. Reducing price for commercial customers to $600 per hour will increase demand by 30%. We assume base month is March because it represents the most recent situation and therefore net profit change of -$3,919.

3. Increasing promotion will increase sales by 30%. There will be a profit increase as long as the cost of promotion is less than $33,120.

4. Reducing operations to 16 hours on weekdays and eight hours on Saturdays will result in a loss of 20% of commercial revenue hours. The net change in profit is -$21,307.20.

RECOMMENDATIONS:

Recommendations and Justifications for Prestige Data Services’ Future

Looking at the cost profit volume analysis, we notice that increasing prices, decreasing prices and reducing operations all result in...