Case:

Please answer questions 1-6.

Instructional Case: Main Line vs. Bastnger: A Case in Relevant Costs and Increments] Analysts Thomas L. Barton, William G. Shenkir and Brian C. Marinas ABSTRACT: Important management accounting techniques. such as contribution analysis and relevant costing, are integral to the widely publicized case of Main Line Pictures vs. Basinger. Main Line sued actress Kim Basinger in l991, alleging that she caused the company to lose prots of $5 to Slll million by withdrawing from a controversial film project in breach ot'contract. Main Line argued that it would have earned a pretax profit on the lm in the range of $3 million to $3 million if Basinger had remained. The prot figures were calculated from presale contract amounts and the film's budgeted cost. Main Line also argued that it expected to lose $2 million on the film as it was eventually made primarily because Basinger's replacement was of much lower box office appeal. Basinger argued that only a hanth ofvery successful films could generate profits to Main Line in the dollar amounts cited because ot'the many contractual claims against those profits by others. in addition, her presence in the lm was no guarantee that the film would be successful. At issue here are the reliability and reasonableness of the numbers used in Main Line's lost profit computation. The case relies heavily on the identification ofrelevant costs and the performance of sensitivity analysis as the reader is asked to consider alternative cost and revenue assumptions to ascertain the impact on the lost prot amount. Finally. the reader is asked to prepare his or her own alternative lost prot calculation. In 199 l. Main Line Pictures, Inc. sued actress Kim Basinger [and others] for breach ofcontract. Basinger had been in negotiation with Main Line to star in the film, "Boxing Helena\" but had withdrawn from the project. The suit was heard in early IW] in the Superior Court ofthe State of California, for the County of Los Angeles with the Honorable Judith C. Chirlin presiding. For the Planti'lllrlain Line}, Patricia L. Glaser, Attorney at Law: Nobody is saying Miss Basinger has to act in this movie. Nobody ever said that. 1What we said was when she committed to do the project. when her agents negotiated the terms of the contract, and when she agreed to do this deal. if she wants to walk away because she changed her mind, she's got to pay the piper. She's got to pay for that. And all l'm saying is we're entitled {to} our damages between 5.1 and 9.? million dollars. We're entitled to that, Ladies and Gentlemen. because there was an oral agreement. and l'm going to show you there is also a written agreement. For the Deiendant (Kim Basinger}, Howard L. Weitsan an, Attorney at Law: First of all, you are being asked to, in effect, order Kin Basinger to pay 5.1 or 9 something or ID, whatever. multiple millions of dollars for a picture that was not made because Mr. Mazzocone [Main Line President] was angry and wanted to make the movie. She's not responsible for that. No way in the world would I suggest to you Carl Mazzocone {or} Main Line Pictures is entitled to 55 or $8 or SI U million because he has a duty under the law to minimize his loss, and it does not include going out and making a picture knowing you are $2 million short. and that's what happened here. BACKGROUND: In the Basinger case. the primary issue for jurists and other legal enthusiasts was whether Basinger breached an actual contractual agreement or simply engaged in the usual caprice ofHollyvm-od deal making. The press was awash with stories declaiming the lack of integrity in Hollywood deals and discussing the possible adverse implications for actors and production companies in general. The film r'Bosing Helena" was no less controversial than the legal issue. It involves a woman who is injured in a car accident. The doctor who "rescures" her amputates her injured legs and unhurt arms and keeps her hostage in a box. hoping she will eventually fall in love with him. Basinger testied that she withdrew from the starring role, after ongoing negotiations. because ofeoncerns about her character's personality and graphic scenes of an adult nature. Main Line, however, had 53 million in potential domestic and $16 million in foreign presale agreements based on Basinger's participation in the film. After her withdrawal, a lesser known actress, Sherily Fenn [a star of the television series. \"Twin Peaks"). was engaged, resulting in only 52.7 million in