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 - on january 1 2018 concord corporation declared a

Question - On January 1, 2018, Concord Corporation, declared a 10% stock dividend on its common stock when the fair value of the common stock was $32 per share. Stockholders' equity before the stock dividend was declared ...

Question - cassy reports a gross tax liability of 1110 she

Question - Cassy reports a gross tax liability of $1,110. She also claims $510 of nonrefundable personal credits, $755 of refundable personal credits, and $310 of business credits. What is Cassy's tax refund or tax liabi ...

Question - f l wright architects incorporated as licensed

Question - F. L. Wright Architects incorporated as licensed architects on September 1, 2018. During the first month of the operation of the business, these events and transactions occurred: Sept. 1 Stockholders invested ...

Question - in 2018 aman gave his church 50000 in cash he

Question - In 2018 Aman gave his church $50,000 in cash. He also gave his alma mater university another $70,000 of appreciated stock (basis of $18,000). Aman's AGI is $200,000. What is Aman's charitable deduction for 201 ...

Question - one december a 101-year-old woman died and left

Question - One December, a 101-year-old woman died and left $25 million to a university. This fortune was accumulated through shrewd and patient investment of a $4000 nest egg over the course of 55 years. In turning $400 ...

Question - during 2017 crimson inc purchased 2775000 of

Question - During 2017, Crimson Inc. purchased $2,775,000 of inventory. The cost of goods sold for 2017 was $2,635,938 and the ending inventory at December 31, 2017 was $544,688. What was the inventory turnover for 2017?

Question - dividend income susan owns shares of stock in a

Question - Dividend Income. Susan owns shares of stock in a corporation. In January 2018, she received a 1099-DIV reporting the following: Total ordinary dividends $526 Qualified dividends included in total dividends 450 ...

Question - jimeniz enterprises issued 9 5-year 2600000 par

Question - Jimeniz Enterprises issued 9%, 5-year, $2,600,000 par value bonds that pay interest semiannually on September 1 and March 1. The bonds are dated September 1, 2014, and are issued on that date. The market rate ...

Question please discuss the validation or failure of the

Question: Please discuss the validation or failure of the theory of efficient markets and behavioral finance given the "Credit Crunch" or global financial crisis of 2007-2009. Your initial post must be in your own words, ...

Question - journalize the transaction1 collected 25000 for

Question - Journalize the transaction 1. Collected $25,000 for services to be provided over the coming year on June 30. 2. Paid $72,000 for a three-year insurance policy on July 10 with coverage beginning on August 1. 3. ...

  • 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