Accounting 505 Week 6 Essay

968 Words Apr 5th, 2013 4 Pages
: Ethics and the Manager; Shut Down or Continue Operations

Marvin Braun had just been appointed vice president of the Great Basin Region of the Financial Services Corporation (FSC). The company provides check processing services for small banks. The banks send checks presented for deposit or payment to FSC, which then records the data on each check in a computerized database. FSC sends the data electronically to the nearest Federal Reserve Bank check-clearing center where the appropriate transfers of funds are made between banks. The Great Basin Region consists of three check processing centers in Eastern Idaho—Pocatello, Idaho Falls, and Ashton. Prior to his promotion to vice president, Mr. Braun had been manager of a check processing
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*Regional administrative expenses are allocated to the check processing centers based on revenues.
*Corporate administrative expenses represent a standard 8 charge against revenues.

Upon seeing this report. Mr. Braun summoned Lance Whiting for an explanation.

Braun: What's the story on Ashton? It didn't have a loss the previous year, did it?
Whiting: No, the Ashton facility has had a nice profit every year since it was opened six years ago. But Ashton lost a big contract this year.
Braun: Why?
Whiting: One of our national competitors entered the local market and bid very aggressively on the contract. We couldn't afford to meet the bid. Ashton’s costs--particularly their facility expenses--are just too high. When Ashton lost the contract, we had to lay off a lot of employees, but we could not reduce the fixed costs of the Ashton facility.
Braun: Why is Ashton's facility expense so high? It-s a smaller facility than either Pocatello or Idaho Falls and yet its facility expense is higher.
Whiting: The problem is that we are able to rent suitable facilities very cheaply at Pocatello and Idaho Falls. No such facilities were available at Ashton, so we had them built. Unfortunately, there were big cost overruns. The

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