Prestige Telephone Co.

Harvard Business School Case #197-097

Case Software #XLS030

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Exhibit 1 Prestige Data Services Summary of Computer

Utilization, First Quarter 2003
Revenue Hours
Intercompany
Commercial
Total revenue hours
Service hours
Available hours
Total hours

January

February

206
123
329
32
223
584

181
135
316
32
164
512

March
223
138
361
40
143
544

Exhibit 2

Prestige Data Services Summary Results of Operations, First Quarter 2003

January

February

March

Revenues
Intercompany sales
Commercial sales
Computer use
Other
Total revenue
Expenses
Space costs:
Rent
Custodial services

$82,400

$72,400

$89,200

98,400
9,241
$190,041

108,000
9,184
$189,584

110,400
12,685
$212,285

$8,000
1,240
9,240

$8,000
1,240
9,240

$8,000
1,240
9,240

95,000
5,400

95,000
5,400

95,000
5,400

25,500
680
1,633
128,213

25,500
680
1,592
128,172

25,500
680
1,803
128,383

29,496
12,000
9,000
11,200
61,696
9,031
7,909
15,424
$231,513
($41,472)

29,184
12,000
9,000
11,200
61,384
8,731
7,039
15,359
$229,925
($40,341)

30,264
12,000
9,000
11,200
62,464/
10,317
8,083
15,236
$233,723
($21,438)

Equipment costs
Computer leases
Maintenance
Depreciation:
Computer equipment
Office equipment and fixtures
Power
Wages and salaries
Operations
Systems development and maintenance
Administration
Sales
Materials
Sales promotions
Corporate services
Total expenses
Net income (loss)

CALCULATION OF FIXED COST AND VARIABLE COST

Fixed cost
Particulars

Amount(in $) TOTAL(IN $)

Space costs:
Rent
Custodial services

$8,000
1,240

Computer leases
Maintenance

95,000
5,400

$9,240

100,400

Depreciation:
25,500
680

Computer equipment
Office equipment and fixtures

26,180

Wages and salaries;

12,000
9,000
11,200

Systems development and maintenance

Administration
Sales

32,200
8000

Sales promotion*
(* assumption is taken that the sales promotionn is $8000)
TOTAL FIXED COST

Variable Cost
Power
Total power cost
Total hours
Available hours
Total hours of computer use(total hours-total available hours)
Power cost per hour(total power cost/total hours of computer use)

$176,020

1,633
5,028

1,592

1,803

584
223
1110

512
164

544
143

29,184

30,264

4.52972973
29,496
88,944

Operations
Total operations
Operation cost per hour(total operaions/total hours of computer use)
TOTAL VARIABLE COST PER UNIT

80.12972973
$84.66

*since the question is silent on the cost,we assume power and operation to be part of variable cost

CALCULATION OF BREAK EVEN POINT

Contribution margin=S.P - Variable Cost P.U
Selling Price
Variable cost

$800.00
$84.66

Contribution margin

$715.34

(*According to the case study,there was an agreement with PDS to cover $82000 of the cost)
Break even analysis=TFC - (cost covering by PTC - average monthly hours*VC P.U) / Contribution margin
average montly hours* V.C P.U
cost covering - average monthly hours* V.C P.U
TFC - (cost covering - average monthly hours* V.C P.U)
Break even analysis

17355.3
64644.7
$111,375
155.6956133

BREAK EVEN REVENUE( estimated hours * S.P) $124,552.00

CALCULATION OF EFFECT ON INCOME

a) Increasing price to $1000 per hour, Reduce demand by 30%
Initial commercial demand (in hrs)
Demand after reduction
Price
Contribution per hour
Income=Demand* comtribution per hour @$1000
compare to the present
Price
contribution per hour
Income=Demand * contribution per hour @$800

138
96.6
$1,000.00
$915.34
$88,421.84

$800.00
$715.34
$98,716.99

Thus,monthly contribution to fixed cost and income is greater at $800, hence the income will be higher @800
b) Price to $600 , Increase demand by 30%
Intial demand
Increase in demand
contribution per hour

138
179.4
$515.34

Income=Demand* contribution per hour @$600

$92,452.09

Income=Demand * contribution @ $800

$98,716.99

Thus,monthly contribution to fixed cost and income is greater at $800, hence the income will be higher @800
c) Increased promotion,increases sales by upto 30%
Increase in demand(138+138*30%)
Price
contribution per hour

179.4
800
$715.34

Income=Demand * contribution per hour

$128,332.09

Income= Demand * contribution per hour

Difference between the income

$98,716.99
$29,615.10

Thus, with the increase in sales promotion, there is an increase in demand keeping the price constant
Hence there is increase in income
d) Reducing operation 16 hrs(weekdays) 8 hrs(saturdays), loss 20% commercial revenue hour
Reduce in hours(138-138*20%)

110.4

contribution per hour

Income= Demand* contribution per hour
Income= Demand * contribution per hour
Difference between the income

715.34
78973.536
$98,716.99
$19,743.45

Thus,by reducing the work hour,demand is reduced and hence the income is effected with a loss of $19743.45