Selecting one contract over another


Problem: During the most recent accounting period faux line and the traditional line sold 15,000 and 2,000 units. Financial statements are shown below.

Sales                                                                faux            Traditional
Less cost of goods sold                                 $800,000            $200,000
Unit level production cost                                500,000             120,000
Depreciation, production equipment                  120,000              30,000
Gross margin                                                  180,000              50,000
Less operating expenses             
Unit level selling and admin costs                       30,000               25,000
Corporate level facility expenses (fixed)              26,000              26,000
Net income (loss)                                             124,000              (1,000)

Based on this information, the company should??

a) eliminate the traditional line because it operates at a loss b)keep the traditional because it contributes 26,000 to total profit c) keep the traditional because it contributes 55,000 to profit d) keep the traditional because it contribute 50,000 to total profit

I’m also trying to decide which one of these contracts I should accept. The costs and revenues with each are listed below

                                               Contract A        Contract B
Contact revenue                           200,000          260,000
Materials                                       10,000             10,000
Labor                                            88,000           120,000
Depreciation on equipment               8,000             10,000
Cost incurred for consulting advice    1,500               1,500
Allocated portion of overhead            5,000               3,000

Not sure which amount is relevant for selecting one contract over another?

a) contract revenue and costs materials b)materials, consulting advice and overhead c)costs of consulting advice and overhead d)contract revenue and labor costs

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Accounting Basics: Selecting one contract over another
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