Prestige Telephone Company the Theme of the Case Study

Prestige Telephone Company

The theme of the given case study revolves around the motive of the managing authorities of the Prestige Telephone Company to analyze the standing of the corporation and developing the action plan that will serve the purpose to enhance the profitability and effectiveness of the newly introduced subsidiary, known as the Prestige Data Service. The subsidiary was acquired as a facilitator of the company profits on non-regulatory bases as well as ensuring the computer service in the vicinity of the Prestige Telephone Company. As a matter of facts the case study indicates that Prestige Data service is unable to meet the required task for which it was formulated in the Prestige Telephone Company. But after two years it began its operations at a pace that was required by the organization. In the entire case description the managing authorities of the Prestige Telephone Company are trying to come up with an accurate method to make the decision regarding the Prestige Data Service.

Case Analysis

In order to evaluate the two alternatives of whether the managing authorities of Prestige Telephone Company should retain the subsidiary or to eliminate its usage from the organization requires a detailed cost and benefit analysis of the Prestige Data Service.If the organization decides to sell the subsidiary then the only alternative the firm has is to arrange another computer system or rather outsource the service. This will result in an increased variable cost hence increasing the contributions as stated in the Exhibit 2. As a consequence this decision will also have an implicit cost for the prestige data service, which is non-refundable lease foregone. It can easily be deduced that the Prestige Telephone Company is not in a suitable position to increase its sunk cost from the Prestige Data Service and outsource the same service for a cost.

Similarly the other important parameter that the Prestige Telephone Company's executive and decision making authorities need to analyze is the cost and volume ratio of the Prestige Data Service with respect to its profitability. If the system is leased for four-year than by the breakdown of the cost into fixed and variable costs; the only….....