Case: Prestige Telephone Company
MGMT 505 Management Accounting II
1. Estimate the following:
a) Using information in Exhibit 2, analyze cost behavior for each expense. (Use
regression analysis or High-Low method to determine fixed and variable portion for
each expense using revenue hours as the cost driver).
b) Based on analyzed cost behavior, what level of commercial sales of computer use
would be necessary for the subsidiary to break even each month? In answering this
question, assume parent demand for services will average 205 hours per month and
ignore “Commercial Sales: Other” revenue (i.e., assume it is zero).
2. Estimate the effect on the subsidiary’s income from
a) Increasing the price to commercial customers to $1,000 per hour that would reduce
external (i.e. commercial) demand by 30% over March levels
b) Reducing the price to commercial customers to $600 per hour that would increase
external (i.e. commercial) demand by 30% over March levels