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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Crazy Fan Guard Company provides security services to popular live sporting event venues. Crazy Fan management has identified one of its top risks as the possibility that restrictions on premium close seating options will severely decrease its sales revenue by lessening the demand for its security services. The table below displays a description of this top risk, an inherent risk assessment, three risk response alternatives, and finally, a residual risk assessment.

Chapter 13, Problem 36E, Crazy Fan Guard Company provides security services to popular live sporting event venues. Crazy Fan

Crazy Fan Guard’s management accounting team estimates that the incremental cost of implementing response A is $2,200,000, and the incremental cost of implementing response B is $700,000.

Required:

  1. 1. Calculate the benefit of each risk response alternative A through C.
  2. 2. Calculate the net benefit of each risk alternative A through C.
  3. 3. CONCEPTUAL CONNECTION Using net benefit as the criterion, explain the best risk response alternative that Crazy Fan Guard Company management should implement.

1.

To determine

Compute benefit of each of the risk response alternative.

Explanation

Enterprise Risk Management:

Enterprise risk management is a process in which, business risks are maintained at a level decided by the management, so that the strategic plans of the organization are achieved. That is, risks are maintained at a level that satisfies both the risk category as well as objectives of the organization.

Computation of response benefit:

ParticularsA ($)B ($)C ($)
Impact of inherent risk (A)10,000,00010,000,00010,000,000
Probability of inherent risk (B)25%25%25%
Inherent risk (

2.

To determine

Compute net benefit of each of the response alternative.

3.

To determine

Select an alternative which would be chosen.

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