Accounting for Managers

41458Bob Waldorf is in charge of buying property to be used as branch office sites for the Kenner National Bank (KNB). Mr. Waldorf paid $120,000 in July 2017 for a lot (Site A) located in a growing section of the city. Early in 2018, Mr. W has a chance to purchase a better lot (Site B) for $80,000. The traffic count for Site B is twice the traffic count for Site A and has a much bigger parking lot.

The current market price for Site A is now $100,000. Mr. W thinks it would be in the bank’s best interest to sell Site A and purchase Site B but he doesn’t want to look bad in the eyes of his boss, Fred Mullet (even though Mr. M has made plenty of bad decisions himself). In any case, Mr. W must get Mr. M’s permission to sell Site A and then purchase Site B.

Required:
1. Determine the amount of the loss that would be recognized if the Site A were to be sold for $114,000. Show all calculations.

2. Identify the type of cost (sunk, opportunity) that is represented by the original price of Site A. Is this cost relevant to decision-making? Why or why not? (2-3 sentences)

3. Identify the type of cost (sunk, opportunity) that is represented by the current market value of Site B. Is this cost relevant to decision-making? Why or why not? (2-3 sentences)

4. Name two other important qualitative or quantitative facts do you think that Mr. Waldorf would like to know before bringing the proposal to Mr. Mullet? (3-4 sentences)

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