Question

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	$	790,000		$	740,000
Unit-level materials		244,000			214,000
Unit-level labor		258,000			308,000
Unit-level overhead		34,000			28,000
Supervisor’s salary		64,000			64,000
Rental equipment costs		22,000			26,000
Depreciation on tools (zero market value)		19,500			19,500
Allocated portion of companywide facility-sustaining costs		10,400			8,400
Insurance cost for job		15,800			15,800

Required

1. 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.

2. 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.

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. (Negative amounts should be indicated by a minus sign.)

	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) 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. (Negative amounts should be indicated by a minus sign.)

	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) Recommend whether to accept or reject job B?

Answer 1

Solution:

A)

	Job A	Job B
Contract price	$790,000	$740,000
Unit level materials	($244,000)	($214,000)
Unit level labor	($258,000)	($308,000)
Unit level overhead	($34,000)	($28,000)
Superbisor's salary	0	0
Rental equipment costs	($22,000)	($26,000)
Depreciation on tools	0	0
(Zero market value)
Allocated portion of company wide	0	0
Facility sustaining costs	0	0
Insurance cost for job	0	0
Contribution to profit (loss)	$232,000	$164,000
Recommend which job to accept?	JOB A

Note:

1)There is comparsion between Job A and Job b, cost which are to be incurred in either of the project selected are irrelevant. Hence, supervisor salary and insurance will not come.

2)Depreciation is non cash cost , hence it will not come.

3)Allocated cost is the cost which will be incurred even if the job is selected, hence it will not come.

Job A is considered as its contribution is more than Job B.

B)

	Job B
Contract price	$740,000
Unit level materials	($214,000)
Unit level labor	($308,000)
Unit level overhead	($28,000)
Rental equipment costs	($26,000)
Depreciation on tools	0
(Zero market value)
Allocated portion of company wide	0
Facility sustaining costs	0
Supervisior's salary	($64,000)
Insurance cost for job	($15,800)
Contribution to profit (loss)	$84,200
Recommend to accept or reject Job B	Accept

Note:

1)Here, comparsion is between job a and Job b, here situation is accepting job b or not, hence cost which are being incurred just because of job b will come. Hence, here supervisor's salary and insurance cost will since these are additional and will not be incurred if no job is selected.

2)Depreciation is non cash cost, hence it will not come.

3)Sustaining cost is on company wide level. It will be incurred even if no job selected. Hence, it will come.

Contribution from B is positive, hence it should be accepted.

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