Questions

1. Appraise the results of operations of Barings Data Services. Is the subsidiary really a problem

to Barings Telephone Company? Consider carefully the differences between reported costs and

costs relevant for decisions that Mark Rowe is considering.

2. 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?

3. Estimate the effect on income of each of the options Rowe has suggested if Bradley

estimates as follows:

a. Increasing the price to commercial customers to $1,000 per hour would reduce

demand by 30 percent.

b. Reducing the price to commercial customers to $600 per hour would increase demand

by 30 percent.

c. 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 Barings Data

Services with no reported loss each month if commercial hours were increased 30

percent?)

d. Reducing operations to 16 hours on weekdays and eight hours on Saturdays would

result in a loss of 20 percent of commercial revenue hours.

4.Can you suggest changes in the accounting and reporting system now used for operations of

Barings Data Services which would result in more useful information for Rowe and Brad