1. Prestige Telephone What should we learn? – Fixed vs. variable classification Rent vs. Power Average cost is not variable cost Telling if a cost is fully or semi-variable – Avoidable vs. unavoidable costs Operating Labor vs. Equipment Leases – Traceable vs. Allocated Costs Sales Promotion vs. Corporate Overhead

2. Prestige Telephone What does PDS contribute to PTs profits? – ($800-400)*205 per month – Corporate OH ~ $15, 000 – Rent & Janitorial charges – Overall, not bad at all!! PT profit if PDS discontinued? – All unavoidable costs would continue Leases, maintenance, depreciation, Corp. Services – All contributions would be lost

3. Prestige Telephone What should Rowe do? – Keep PDS – Redesign reporting system to show Fixed and Variable Costs Contribution Margin Savings to PTS from subsidized rates Unavoidable costs to PT being picked up by PDS – Help increase commercial hours Here alternative c was the best according to many students.