Continent Construction Company is a building contractor specializing in small commercial buildings. The company has the opportunity to accept one of two jobs; it cannot accept both because they must be performed at the same time and Continent does not have the necessary labor force for both jobs. Indeed, it will be necessary to hire a new supervisor if either job is accepted. Furthermore, additional insurance will be required if either job is accepted. The revenue and costs associated with each job follow:

Cost Category Job A Job B
Contract price $ 870,000 $ 820,000
Unit-level materials 257,000 227,000
Unit-level labor 274,000 324,000
Unit-level overhead 47,000 37,000
Supervisor’s salary 77,000 77,000
Rental equipment costs 29,500 32,500
Depreciation on tools (zero market value) 23,400 23,400
Allocated portion of companywide facility-sustaining costs 11,100 9,300
Insurance cost for job 19,600 19,600

Required

Assume that Continent has decided to accept one of the two jobs. Fill in the information relevant to selecting one job versus the other. Recommend which job to accept.

Assume that Job A is no longer available. Continent's choice is to accept or reject Job B alone. Fill in the information relevant to this decision. Recommend whether to accept or reject Job B.

Decision Job A Job B
Contract price
Unit-level materials
Unit-level labor
Unit-level overhead
Supervisor’s salary
Rental equipment costs
Depreciation on tools (zero market value)
Allocated portion of companywide facility-sustaining costs
Insurance cost for job
Contribution to profit (loss) $0 $0
Recommend which job to accept?
Decision Job B
Contract price
Unit-level materials
Unit-level labor
Unit-level overhead
Rental equipment costs
Depreciation on tools (zero market value)
Allocated portion of companywide facility-sustaining costs
Supervisor’s salary
Insurance cost for job
Contribution to profit (loss) $0
Recommend whether to accept or reject job B?

Question

20-05-2020
Business

contestada

Continent Construction Company is a building contractor specializing in small commercial buildings. The company has the opportunity to accept one of two jobs; it cannot accept both because they must be performed at the same time and Continent does not have the necessary labor force for both jobs. Indeed, it will be necessary to hire a new supervisor if either job is accepted. Furthermore, additional insurance will be required if either job is accepted. The revenue and costs associated with each job follow:

Cost Category Job A Job B
Contract price $ 870,000 $ 820,000
Unit-level materials 257,000 227,000
Unit-level labor 274,000 324,000
Unit-level overhead 47,000 37,000
Supervisor’s salary 77,000 77,000
Rental equipment costs 29,500 32,500
Depreciation on tools (zero market value) 23,400 23,400
Allocated portion of companywide facility-sustaining costs 11,100 9,300
Insurance cost for job 19,600 19,600

Required

Assume that Continent has decided to accept one of the two jobs. Fill in the information relevant to selecting one job versus the other. Recommend which job to accept.

Assume that Job A is no longer available. Continent's choice is to accept or reject Job B alone. Fill in the information relevant to this decision. Recommend whether to accept or reject Job B.

Decision Job A Job B
Contract price
Unit-level materials
Unit-level labor
Unit-level overhead
Supervisor’s salary
Rental equipment costs
Depreciation on tools (zero market value)
Allocated portion of companywide facility-sustaining costs
Insurance cost for job
Contribution to profit (loss) $0 $0
Recommend which job to accept?
Decision Job B
Contract price
Unit-level materials
Unit-level labor
Unit-level overhead
Rental equipment costs
Depreciation on tools (zero market value)
Allocated portion of companywide facility-sustaining costs
Supervisor’s salary
Insurance cost for job
Contribution to profit (loss) $0
Recommend whether to accept or reject job B?

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Answer:

Assume that Continent has decided to accept one of the two jobs. Fill in the information relevant to selecting one job versus the other. Recommend which job to accept.

the company should choose Job A

Assume that Job A is no longer available. Continent's choice is to accept or reject Job B alone. Fill in the information relevant to this decision. Recommend whether to accept or reject Job B.

if the company cannot perform Job A, then it should perform Job B since it increases the company's profit

Explanation:

the relevant costs are the following:

Cost Category Job A Job B

Contract price $870,000 $820,000

Unit-level materials 257,000 227,000

Unit-level labor 274,000 324,000

Unit-level overhead 47,000 37,000

Supervisor’s salary 77,000 77,000

Rental equipment costs 29,500 32,500

Insurance cost for job 19,600 19,600

contribution to profit $165,900 $102,900

Depreciation and company wide fixed costs are not relevant since they will be incurred with or without these projects. Since the tools' market value is $0, then they are either used for this projects or discarded. But the depreciation expense will remain the same. Total company wide fixed costs are the same whether one or zero jobs are carried out, so they are not relevant costs.