7/27/2019 Prestige telephone ppt

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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

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Prestige Telephone

• What does PDS contribute to PT’s 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

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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.