Prestige Data Services

1. Prestige Data Services had not lived up to the company's expectations. They have not properly predicted the different variables that the company might face. Despite Prestige Data Services efforts to utilize the additional available hours of computer time to commercial customers, their available hours of computer time still remained high.

The decision that Daniel Rowe must consider is whether to shut down the subsidiary and outsource the resources or continue its operations. The opportunity cost is the relevant cost that should be taken into account when making the decision. The reported costs should not be considered because most of these costs are already incurred and will not be recovered if the company ceases to exist. The subsidiary should be shut down if the incremental cost of keeping the subsidiary is greater than the incremental cost of shutting down. They have many different costs that should be taken into account when making this decision. The 4 year non- cancellable lease is an opportunity costs that should be taken into account. Other costs include the costs of outsourcing data services form an outside vendor, the costs of laying off employees from the subsidiary, the proceeds of disposition from sale of the subisdary's equipment. If Prestige were to shut down its subsidiary, they would be able to avoid variable costs such as wages and power costs, however they would also lose the revenue contributions from the subsidiary and the services provided by the Parent company to the subsidiary. All of these factors along with many other must be considered when deciding whether the subsidiary should be shutdown.

2. Rent 8000

Custodial services 1240

Computer leases 95000

Maintenance 5400

Computer Equipment 25500

Office

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