Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Accounting Basics Expert

Question: Trinco Ltd (Trinidad & Tobago-T&T) has been negotiating a contract with a potential customer in Jamaica. Before the negotiations started the Jamaican company agreed to pay $10,000 in advance to cover the expenses of Trinco. These expenses were to cover the costs of sending out technical staff to Jamaica. This is the first export order the company has received since 2014. Unfortunately, the previous export orders were not profitable and managers decided the best strategy was to concentrate on business in T&T.

The sales department has prepared a statement showing that the contract will make a profit. It is normal for the sales department to prepare cost estimates as they have a lot of experience of this type of work. Occasionally the management accountant will also be asked to comment on the estimates prepared by the sales department. As this order is different and may lead to a lot more business in the future the senior managers asked the management accountant to comment on the statement, shown below.

Statement prepared by sales department

$ Sales - including deposit of $20,000 (see note 1) 250,000

Labour (see note 2) 85,000

Supervisor (see note 3) 15,000

Design overheads (see note 4) 2,000

Administrative charge (see note 5) 25,000

Materials (see note 6) 110,000 Depreciation on machinery (see note 7) 5,000

Profit $8,000

After her investigation the management accountant prepared a brief report. The main points are summarised below. Comments from management accountant Note 1 The deposit will not have to be refunded.

Note 2 The labour costs include $15,000 of costs for work that has already been incurred. This is the cost of sending engineers to Jamaica to help with the negotiations.

Note 3 This is 50% of the cost of a supervisor. It is estimated that the supervisor will spend about half his time on the contract. This cost does not include a $2,000 bonus for the supervisor if the contract is completed on time.

Note 4 These costs have already been incurred.

Note 5 This charge is equal to 10% of sales. This is levied on all contracts to cover general administrative costs.

Note 6 Materials 40,000kg of material X at $1.5 per kg = $60,000 20,000kg of material Y at $2.50 per kg = $50,000

Material X is used regularly by the company. There is 20,000kg in stock but the market price has just increased to $2 per kg. Material Y is never used by the company. There is 30,000kg in stock that cost $2.50 per kg. To buy it today would cost $4 per kg. An alternative choice for the company is to sell it for scrap at $2.10 per kg. Note 7 Depreciation has been calculated at $5,000. However the management accountant discovers that this charge is for a machine that is currently not used. The management accountant has received an offer of $100,000 for the machine now but if the project goes ahead it will only be sold for $50,000 at the end of the project. Additional information The statement above does not include the cost of additional training if the contract goes ahead. The cost of the training has been estimated at $10,000.

Question 1 Advise managers whether or not this contract is profitable. All assumptions must be clearly stated.

Question 2 Identify and evaluate any additional information that managers need to consider before accepting or rejecting this contract (Adaptation from McGraw-Hill)

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M92572049

Have any Question?


Related Questions in Accounting Basics

Question the following information is taken from the

Question: The following information is taken from the accrual accounting records of Kroger Sales Company: 1. During January, Kroger paid $9,150 for supplies to be used in sales to customers during the next 2 months (Febr ...

Question - maureen operates a cosmetics sales business from

Question - Maureen operates a cosmetics sales business from her home. She uses 400 of 1,600 square feet of the home as an office for the entire year. Her income before her home office deduction is $3,400 and un-apportion ...

Question - a company incurred the following transactions

Question - A company incurred the following transactions: 1. Wages of $2,650 accrued at the end of the prior fiscal period were paid this fiscal period. 2. Real estate taxes of $7,100 applicable to the current period hav ...

Question - bubbles cos reported 2018 beginning inventory of

Question - Bubbles Co's reported 2018 beginning inventory of $1,800,000, purchases of $9,000,000, and sales of $11,400,000. A physical inventory count at 12/31/2018 reported ending inventory of $2,100,000. Bubbles' gross ...

Question revenue from contracts with customers

Question: Revenue From Contracts With Customers Examples Part I: For each of the scenarios determine if a contract exists by applying the 5 requirements for a contract to exist under ASC 606. 1. For each of the following ...

Question - family home and security inc sells super

Question - Family home and security, Inc sells super padlocks. It reported an increase in net sales from 5.0 billion in 2014 to 5.3 billion in 2015, and an increase in gross profit from 1.5 billion in 2014 to 1.7 billion ...

Question - 1 on january 1 2017 germany ltd a canadian

Question - 1. On January 1, 2017, Germany Ltd. (a Canadian public company) issued a series of bonds in order to raise money for future projects. The bonds paid 5% interest per year, and mature on January 1, 2027. Germany ...

Question - the financial records of ivanhoe inc were

Question - The financial records of Ivanhoe Inc. were destroyed by fire at the end of 2017. Fortunately, the controller had kept certain statistical data related to the income statement as follows. 1. The beginning merch ...

Discussion as a present for doing so well in your finance

Discussion: As a present for doing so well in your finance class, your uncle has offered you a choice: He will give you either a zero coupon long term bond or a short term bond that pays coupon payments. Which would you ...

Question - 1 what is gross profit margin and what is net

Question - 1. What is gross profit margin and what is net profit margin? What are in the between the two? Give a few examples to explain the items between these margins, and show how to analyze these items for improvemen ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As