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Case Study

Prestige Telephone Co.

CLASSIFICATION OF COSTS
Fixed costs:
Space rent
Custodial services
Computer leases
Maintenance
Depreciation
Power
Wages:
Operations
Systems development
Admnistration
Sales
Sales promotions
Total fixed costs I
Corporate services
Total fixed costs II

Jan

Feb

Mar

Average

8.000
1.240
95.000
5.400
26.180

8.000
1.240
95.000
5.400
26.180

8.000
1.240
95.000
5.400
26.180

8.000
1.240
95.000
5.400
26.180
181

12.000
9.000
11.200
7.909

12.000
9.000
11.200
7.039

12.000
9.000
11.200
8.083

Variable cost per hour:


Power
Wages operations
Materials
Variable unit cost per hour

24.898
12.000
9.000
11.200
7.677
200.776
15.236
216.012

4,04
20,10
25,28
49,42

VARIABLE INCOME STATEMENT


%
Revenue:
Intracompany
Commercial
Other
Revenue
Variable costs
Contribution margin
Fixed costs
Net income (loss)
Rounding error

@ Joo C. Neves, ISEG Lisbon, 2004

Price

Volume

Total

400
800

223
138

89.200
110.400
12.685
212.285
17.841
194.444
216.012
(21.568)
(130)

6,36%
361

Case Study

Prestige Telephone Co.

BREAK-EVEN ANALYSIS
Including Without corp.
Corp.Services
Services

Fixed cost to be covered by commercial sales:


Fixed costs
Other fixed revenues
Contribution by intracompany sales
Fixed costs to be covered by commercial sales
Real No. Of commercial hours
Contribution margin per hour of commercial sales:
Price
Variable cost
Contribution margin per hour of commercial sales
Break-even of commercial sales:
No. Hours
Revenue
Safety margin

Cash Breakeven

216.012
12.685
78.179
125.148

200.776
12.685
78.179
109.912

189.832
12.685
78.179
98.968

138

138

138

800,00
49,42
750,58

800,00
49,42
750,58

800,00
49,42
750,58

167
133.600

146
116.800

132
105.600

21,0%

5,8%

-4,3%

a)
1000
-30%
96,6
950,58
91.826
103.580
-11.754

b)
600
30%
179,4
550,58
98.774
103.580
-4.806

c)
800,00
30%
179,4
750,58
134.654

Responses to questions:
Change price to
Variance on demand %
New demand in No. Hours
New unit contribution margin
New contribution margin
Previous contribution margin
Incremental benefit
Actual fixed costs
Allowed increase in promotion
d) Reduce to 16 hours in weekdays
What are the savings?
Basically personnel expenses in operations
How much?
There is an incremental loss

@ Joo C. Neves, ISEG Lisbon, 2004

d)
800,00
-20%
110,4
800,00
88.320
103.580
-15.260

125.148
9.506

33%

8.299
-6.961