Relevant Information for Decision Making case assignment 3 accounting - Essay Example

Firstly because similar to the first situation, this is also a future cash flow. Again here the amount should be considered, however the lost profits should definitely not be finalised as this is not a sure value, but is merely an approximation. c) In the third situation, ‘The loss of $2.1 million on the "Without Basinger" film’, the lost profit value needs to be revised. This is mainly because it is the duty of Main Line to reduce its losses by law and this is referred to as the ‘Doctrine for Avoidable Consequences’ (Slovenko).

When the company is aware of the possible loss, there is no chance that the company would enter into making the movie after having a clear view of the possible losses, i.e. $2.1 million. Here it is also essential to note that Basinger will not be held responsible for the losses as these are based on the expected sales versus the budgeted costs for Main Line. a) The $3 million salary drawn by Basinger for the final analysis is irrelevant to the determination of lost profits for Main Line. The main reason being that this is an opportunity cost for Basinger, for the course of action adopted by her.

However in the case of lack of alternatives, Basinger will be able to contract her services at $1 million and the $3 million will prove to be a compensation for her services. Hence this is in no way relevant to the lost profits of Main Line (Cushman and Carter). b) In the case of ‘The comparison of revenues for Basinger films with revenues for Fenn films’, this again will not be relevant. Basinger is known for the historical success however there is a lack of predictability to determine the possible impact of Basinger’s participation in the current or future films and the revenues of the films.

This can be based on the views of Lilliston that movies with big stars do not mean big revenues. The movie by Whoopi Homer and Eddie Bruce also provided complete support to this argument. Hence based on