University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

419

Pages:

2
Author:

bratrochanter

Considerations for the Bridal Shop: Whether to Continue or Cease Work When Kathy cancels her custom bridal gown order, the Bridal Shop must decide whether to complete the gown or halt production. This decision hinges on several factors rooted in the UCC’s provisions on seller remedies: Key Considerations for the Bridal Shop: 1. Potential for Resale: o Custom Goods: Since the gown is a size 6, custom-designed for Kathy, resale might be difficult unless another customer matches both the size and design preferences. o Marketability: If the design is broadly appealing, the shop may resell the gown at or near the original price, reducing financial losses. 2. Mitigation of Damages: o The shop must take reasonable steps to minimize losses [UCC 2-704]. This includes determining whether completing or stopping production will result in lower damages. o If the gown could be resold for a substantial amount, completion may minimize losses. If not, ceasing production would prevent further costs. 3. Recovery Options: o Resale: If the shop completes the gown and resells it, it may recover the difference between the resale price and the original contract price, plus any incidental damages (e.g., storage or advertising costs) [UCC 2-706]. o Damages for Unfinished Goods: If the shop stops production, it can seek damages for lost profits and any costs incurred before cancellation [UCC 2-708(2)]. Scenarios and Remedies: 1. If the Shop Completes the Gown: o Resale:  If resold, the shop can recover the difference between the resale price and the contract price.  Example: If sold for $2,000, the shop can claim the $500 loss plus incidental expenses. o Full Recovery Option: If resale is not feasible, the shop may sue Kathy for the full contract price ($2,500) as the gown is specifically made for her and not easily resalable [UCC 2-709(1)(b)]. 2. If the Shop Stops Production: o o Damages: The shop may claim the profit it would have made, plus any costs incurred (e.g., labor and materials used before stopping) [UCC 2-708(2)]. Example: If total production costs were $1,500 and expected profit was $1,000, the shop could recover $1,000 for lost profits plus any incidental damages. Practical and Ethical Implications:   Practical: If resale is likely, completing the gown may yield a better financial outcome. If resale is improbable, stopping production minimizes additional costs. Ethical: The shop should act transparently and communicate its decision to Kathy, explaining how it intends to mitigate damages. Conclusion: The Bridal Shop must balance the likelihood of resale against the costs of completion. If resale seems feasible, completing the gown and pursuing damages through resale or legal action is advisable. Otherwise, stopping production and seeking lost profit damages aligns with UCC provisions.