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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Accept business at a special price
If you are not familiar with The Priceline Group Inc. (PCLN), go to its Web site. Assume that an individual "names a price" of $90 on Priceline.com for a room in Miami. Florida, on September 3. Assume that September 3 is a Saturday, with low expected room demand in Miami at a Marriott International, Inc. (MAR), hotel, so there is excess room capacity. The fully allocated cost per room per day is assumed from hotel records as follows:

Should Marriott accept the customer bid for a night in Miami on September 3 at a price of $90?

To determine

Concept Introduction:

Decision making plays an important role in the management. The decisions taken by managers are called managerial decisions. Managerial Decisions are decisions taken by managers for the operations of a firm. These decisions include setting target growth rates, hiring or firing employees, and deciding what products to sell. Manager's decisions are taken on the basis of quantitative as well as the qualitative measures. The managerial decision includes the decisions like make or buy, accept or reject new offers, sell or further process etc. These decisions are taken on the basis of relevant costs.

Relevant costs are the costs that are relevant for any decision making. Relevant costs are helpful for take managerial decisions like make or buy, accept or reject new offers, sell or further process etc.

Two basic types of the relevant costs are as follows:

  1. Out-of-pocket costs
  2. Opportunity costs

To Indicate:

The decision for the bid

Explanation

The decision for the bid is taken on the basis of the following analysis:

    Bid Price $ 90
    Less: Relevant Costs:
    Housekeeping labor Cost $(30)

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