Accounting 505 Week 6 Essay

Words: 995
Pages: 4

: 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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After hiring another contractor to finish the work, we were way over budget. The large depreciation charges on the facility didn't matter at first because we didn’t have much competition at the time and could charge premium prices.
Braun: Well, we can't do that anymore. The Ashton facility will obviously have to be shut down. Its business can be shifted to the other two check processing centers in the region.
Whiting: I would advise against that. The $900,000 in depreciation charges at the Ashton facility are misleading. That facility should last indefinitely with proper maintenance. And it has no resale value; there is no other commercial activity around Ashton.
Braun: What about the other costs at Ashton?
Whiting: It we shifted Ashton's business over to the other two processing centers in the region, we wouldn’t save anything on direct labor or variable overhead costs. We might save $60,000 or so in local administrative expenses, but we would not save any regional administrative expense. And corporate headquarters would still charge us 8% of our revenues as corporate administrative expenses.
In addition we would have to rent more space in Pocatello and Idaho Falls to handle the work transferred from Ashton: that would probably cost us at least $400,000 a year. And don't forget that it will cost us something to move the equipment from Ashton to Pocatello and Idaho Falls. And the move will disrupt service to customers.
Braun: I understand all of that, but a