Exhibit 1 Prestige Data Services Summary of Computer Utilization, First Quarter 2003 Revenue Hours January February March Intercompany Commercial Total revenue hours Service hours Available hours Total hours 206 123 329 32 223 584 181 135 316 32 164 223 138 361 40 143 544 512 Exhibit2 Prestige Data Services Summary Results of Operations, First Quarter 2003 January February March $82,400 $72,400 $89,200 Revenues Intercompany sales Commercial sales Computer use Other Total revenue Expenses Space costs: Rent Custodial services 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 Equipment costs Computer leases Maintenance Depreciation: Computer equipment Office equipment and fixtures Power 25,500 680 1,633 128.213 25,500 680 1,592 128,172 25,500 680 1.803 128,383 Wages and salaries Operations Systems development and maintenance Administration Sales Materials Sales promotions Corporate services Total expenses Net income (loss) 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) 1. 2. 3. a Questions Appraise the results of operations of Prestige Data Services. Is the subsidiary really a problem to Prestige Telephone Company? Consider carefully the differences between reported costs and costs relevant for decisions that Daniel Rowe is considering. Assuming the company demand for service will average 205 hours per month, what level of commercial sales of computer use would be necessary to break even each month? Estimate the effect on income of each of the options Rowe has suggested if Bradley estimates as follows: Increasing the price to commercial customers to $1,000 per hour would reduce demand by 30% b. Reducing the price to commercial customers to $600 per hour would increase demand by 30%. Increased promotion would increase sales by up to 30%. Bradley is unsure how much promotion this would take. (How much could be spent and still leave Prestige Data Services with no reported loss each month if commercial hours were increased 30%?) Reducing operations to 16 hours on weekdays and eight hours on Saturdays would result in a loss of 20% of commercial revenue hours. Can you suggest changes in the accounting and reporting system now used for operations of Prestige Data Services which would result in more useful information for Rowe and Bradley? c. d. 4