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	$	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

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.

	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?

Answer 1

Relevant costs are the avoidable costs i.e. which are incurred specifically for the job
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)	0	0
Allocated portion of companywide facility-sustaining costs	0	0
Insurance cost for job	19,600	19,600
Contribution to profit	165,900	102,900
Accept Job A
Depreciation is a sunk cost and hence, irrelevant. Alloacted costs are unavoidable
Decision	Job B
Contract price	820,000
Unit-level materials	227,000
Unit-level labor	324,000
Unit-level overhead	37,000
Rental equipment costs	32,500
Depreciation on tools (zero market value)	0
Allocated portion of companywide facility-sustaining costs	0
Supervisor’s salary	77000
Insurance cost for job	19600
Contribution to profit (loss)	$102,900
Recommend whether to accept or reject job B?	Accept