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I need an explanation for STEP 2. Step 1 is just a reference. Thank you. Step 1. Problem recognition, definition and evaluation A lot more money is being spent by your friend each year than is being received. Expense > Revenue $ 10,500 + $ 15,000 = $ 25,500  > 4 x $360 x 12 month = $ 17,280 $ 25,500 > $ 17,280  ( variance $ 8,220 ) The problem could be that the monthly rent is too low. She is losing $ 8,220 per year Step 2. Development of the feasible alternatives Option (1). Raise the rent (Will the market bear an increase?) Option (2) . Lower maintenance expenses (But not so far as to cause safety problems) Option (3). Sell the apartment building. (What about a loss?) Option (4). Abandon the building (Bad for your friend’s reputation)

I need an explanation for STEP 2. Step 1 is just a reference. Thank you. Step 1. Problem recognition, definition and evaluation A lot more money is being spent by your friend each year than is being received. Expense > Revenue $ 10,500 + $ 15,000 = $ 25,500  > 4 x $360 x 12 month = $ 17,280 $ 25,500 > $ 17,280  ( variance $ 8,220 ) The problem could be that the monthly rent is too low. She is losing $ 8,220 per year Step 2. Development of the feasible alternatives Option (1). Raise the rent (Will the market bear an increase?) Option (2) . Lower maintenance expenses (But not so far as to cause safety problems) Option (3). Sell the apartment building. (What about a loss?) Option (4). Abandon the building (Bad for your friend’s reputation)

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I need an explanation for STEP 2. Step 1 is just a reference. Thank you.

Step 1. Problem recognition, definition and evaluation

A lot more money is being spent by your friend each year than is being received.

  • Expense > Revenue
  • $ 10,500 + $ 15,000 = $ 25,500  > 4 x $360 x 12 month = $ 17,280
  • $ 25,500 > $ 17,280  ( variance $ 8,220 )

The problem could be that the monthly rent is too low. She is losing $ 8,220 per year

Step 2. Development of the feasible alternatives

  • Option (1). Raise the rent (Will the market bear an increase?)
  • Option (2) . Lower maintenance expenses (But not so far as to cause safety problems)
  • Option (3). Sell the apartment building. (What about a loss?)
  • Option (4). Abandon the building (Bad for your friend’s reputation)
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