Please help me state recommendation to this case as well as proper implementation plan. Thank you!

I. Synthesis/Background of the Case

In 2001, SDC created a subsidiary, PDS.The intent of creating PDS was to provide a revenue stream to subsidize the telephone operations and alleviate the need for a rate increase. Unfortunately, PDS has not met profit expectations. In fact, PDSs continued to experience losses making it necessary to reassess operations. Mrs. Bradley, manager of PDS, thinks the company just needs more time while Mr. Rowe feels it is time to reassess PDS.

II. Statement of the Problem

What should the SDC do with its subsidiary, PDS, since it is incurring lost from its operations?

III. Statement of the Objectives

Using the facts of the case, the analysis aims to further understand the following objectives:

Using the financial statement presented, to properly identify the fixed and variable cost component and identify what is the minimum number of hours for PDS to cover the fixed cost.

IV. Point of View

The group will be taking the point of view of the manager.

V. Conceptual Framework and Areas of Consideration

The analysis of the case would involve answering the following questions:

Appraise the results of operations of PDS. Is the subsidiary really a problem to SDC? Consider carefully the differences between reported costs and costs relevant for decisions that Daniel Rowe is considering.

Answer:A lot of benefits has been avoided by PSD which includes the following:

Lower cost of intercompany work which is billed at $400 per hour. Third party services are billed at $800 per hour.

Tax benefits on the part of the Parent. Due to losses incurred by the subsidiary, the income of the is decreased in consolidation process which results to a lower tax base for the provision of income taxes.

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?

Answer: The company should have commercial hours of 175 hours.

Using Exhibit 2, the following table is the analysis of what is the component of fixed and variable cost.

	Jan	Feb	Mar	Var/Fix/Mix?
Expenses
Space Costs
Space	8,000	8,000	8,000	Fixed Cost
Custodial Services	1,240	1,240	1,240	Fixed Cost
Total Space Cost	9,240	9,240	9,240
Equipment Costs
Computer Leases	95,000	95,000	95,000	Fixed Cost
Maintenance	5,400	5,400	5,400	Fixed Cost
Depreciation:
Computer Equipment	25,500	25,500	25,500	Fixed Cost
Office Equipment and fixtures	680	680	680	Fixed Cost
Power	1,633	1,592	1,803	Mixed Cost
Total Equipment Cost	128,213	128,172	128,383
Wages and Salaries
Operations	29,496	29,184	30,264	Mixed Cost
Systems development and maintenance	12,000	12,000	12,000	Fixed Cost
Administration	9,000	9,000	9,000	Fixed Cost
Sales	11,200	11,200	11,200	Fixed Cost
Total Salaries and Wages Cost	61,696	61,384	62,464
	9,031	8,731	10,317
Sales promotions	7,909	7,039	8,083	Fixed Cost
Corporate services	15,424	15,359	15,236	Fixed Cost
Total expenses	231,513	229,925	233,723
Net Income (loss)	(41,472)	(40,341)	(21,438)

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 percent.

Reducing the price to commercial customers to $600 per hour would increase demand by 30 percent.

Increased promotion would increase sales by up to 30 percent. Bradley is unsure how much promotion this would take. (How much could be spent and still leave PSD with no reported loss each month if commercial hours were increased 30 percent?)

Reducing operations to 16 hours on weekdays and eight hours on Saturdays would result in a loss of 20 percent of commercial revenue hours.

Can you suggest changes in the accounting and reporting system now used for operations of PSDwhich would result in more useful information for Rowe and Bradley?

VI. Alternative Courses of Action

Shutdown or Sell Prestige Data Services

Increase the price to commercial customers to $1,000 per hour

Reducing the price to commercial customers to $600

Reducing operations to 16 hours on weekdays and eight hours on Saturdays

VII. Recommendation and Implementation.

VIII. Learning Points