Prestige Telephone Company Discussion Questions

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If you were to add wages together, plus materials, sales promotions, and corporate services it gives you a variable cost of $94,060 then multiply that by 20% for the loss of commercial sales revenue hours.

94,060

x .20

18,812 (bring down wages and salaries for February this much as these are your variable costs that would be reduced 20%.

New Wages & Salaries amount is $42,884.

Company expenses with the 20% loss would be $212,696.

If you were to take the commercial revenue down 20% as well, it would be a new commercial revenue total of $78,720. With the reduction of 20% January revenue would now be $170,720.

January Expenses of 212,696 subtracted from Total Revenue of $170,361 would be a deficit of , greater than it currently is at .

February

Variable costs:

Wages $61,384

Materials $8,731

Sales Promotion $7,038

Corporate Services $ 15,259

$92,512

x .20 reduction

$18,502.40

$92,512

- $18,502.50

$74,009.60 new variable cost

Original expenses $229,925- $92,512 old variable cost= $139,000 + new variable cost with 20% reduction of $74,009.60= $213,010.60

Revenue Reduction by 20%

$108,000 x .20= $21,600 reduce corporate revenue by this amount

= $86,400 new corporate revenue.

Total new revenue with 20% reduction

$72,400

+ $86,400

+ $9,184

$167,984

Take the new revenue of $167,984 and subtract the expenses of $213,010.60 for the new net income (loss) of .

In both months of January and February the loss is greater than it would have been otherwise.

iv. If increased promotion would increase sales by 30%, how much can be spent each month without reducing income?

The cost of promotions should be increased no more than the break-even point for the business. However, I feel two ways about this, as I work in marketing. If the cost of promotion causes the business to take an initial loss, but builds consumer impressions that they could see a positive return later down the road, it could be an acceptable decision as it brings in additional consumers that would continue to reuse Prestige Data. In this instance Prestige Data could spend $9,000 (if my math is right) on sales promotions enough to support the business without having to rely on Prestige Telephone Company for support. It would then be able to operate, as it’s own company or entity.

4. What specific suggestion for improving the accounting system and report format would you suggest to Rowe and Bradley so that they might more easily understand how well Prestige Data is performing?

For me, visual representation is often better than numerical and it can provide a more holistic viewpoint of the business. I love looking at graphs and charts verses a spreadsheet type view. Even though Prestige Data has operated at a loss for the first three months of the business existence, the company has made great strides in increasing revenue and decreasing the loss of net income. If the main financials were displayed in a visual approach, the balance sheet were provided as back-up, and critical notes were to be placed under the visual representations, I believe that would be the best representation of the business.

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