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  • Solution - Prestige Telephone Co.: Cost Variable Fixed

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    Eshesh Gupta
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    This document classifies the costs of Prestige Telephone Co. as either variable or fixed. It shows the total costs under the base case, treating depreciation as a sunk cost, and considering the opportunity cost of closing down the subsidiary. Closing the subsidiary would save $82,000 per year in unrecovered fixed costs by reducing the break-even point from 174 to 34 hours.

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    Prestige-SCM

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    This document classifies the costs of Prestige Telephone Co. as either variable or fixed. It shows the total costs under the base case, treating depreciation as a sunk cost, and considering the opportunity cost of closing down the subsidiary. Closing the subsidiary would save $82,000 per year in unrecovered fixed costs by reducing the break-even point from 174 to 34 hours.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    11 views2 pages

    Solution - Prestige Telephone Co.: Cost Variable Fixed

    Uploaded by

    Eshesh Gupta
    This document classifies the costs of Prestige Telephone Co. as either variable or fixed. It shows the total costs under the base case, treating depreciation as a sunk cost, and considering the opportunity cost of closing down the subsidiary. Closing the subsidiary would save $82,000 per year in unrecovered fixed costs by reducing the break-even point from 174 to 34 hours.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    Solution - Prestige Telephone Co.

    Classification of costs as variable and fixed:


    Savings due to subsidiary-
    Depreciation opportunity cost of closing
    Base Case as sunk costs down subsidiary
    Cost Variable Fixed Remarks
    Rent 8000 8000 8000
    Custodial services 1240 1240 1240
    Computer lease 95000 95000 95000
    Maintenance 5400 5400 5400
    Depre 26180 0 0
    Power 4 200 200 200
    Operations 24 21600 21600 21600
    Other wages and salaries 32200 32200 32200
    Materials 11000 11000 11000
    Sales promotions 10000 10000 10000
    Corp. services 0 allocated costs 0 0

    TOTAL 28 210820 184640 184640

    Note: Exhibit 2 has other income which is ignored as there can be uncertainty

    Less; Assured contribution from


    parent = (400-28) times 205 hours 76260 76260 76260
    Savings 82000 205 hours @ $400
    Unrecovered fixed costs 134560 108380 26380

    Break-even point= 174 140 34


    Contribution margin per hour=800-28
    ue to subsidiary-
    ity cost of closing
    sidiary

    205 hours @ $400

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