Prestige Telephone

1
Prestige Telephone

• What should we learn?
• Fixed vs. variable classification
• Rent vs. Power
• Average cost is not variable cost
• Telling if a cost is fully or semi-variable
• Avoidable vs. unavoidable costs
• Operating Labor vs. Equipment Leases
• Traceable vs. Allocated Costs
• Sales Promotion vs. Corporate Overhead

2
Prestige Telephone

• What does PDS contribute to PTs profits?
• (800-400)205 per month
• Corporate OH 15, 000
• Rent Janitorial charges
• Overall, not bad at all!!
• PT profit if PDS discontinued?
• All unavoidable costs would continue
• Leases, maintenance, depreciation, Corp.
  Services
• All contributions would be lost

3
Prestige Telephone

• What should Rowe do?
• Keep PDS
• Redesign reporting system to show
• Fixed and Variable Costs
• Contribution Margin
• Savings to PTS from subsidized rates
• Unavoidable costs to PT being picked up by PDS
• Help increase commercial hours
• Here alternative c was the best according to
  many students.