Jax Construction Company plans to erect a new building. It will use part of the space for its own offices and lease the balance of the space to tenants. The company has two alternatives: (1) do its own construction work or (2) use an independent contractor. Cost estimates have been prepared showing the costs of operation for the coming year during which the new building will be constructed. The costs of constructing the building, if done by Jax, are included in that set of estimates. If the company does its own construction work, it will not be able to handle outside construction contracts that would contribute $500,000 to net income. The costs attributable to these outside contracts are excluded from the estimated costs of operation shown below. Estimated Costs to Estimated Costs to Operate - Constuction by Independent Operate (including Construction) - Construction by Jax Contractors (self) $7,000,000 4,800,000 400,000 780,000 55,000 47,000 106,000 91,000 $6,000,000 3,000,000 315,000 Materials Labour Indirect materials and supplies Supervision Taxes and insurance Heat and light Maintenance and repairs Truck and equipment operation Depreciation Travel 650,000 50,000 47,000 106,000 91,000 60,000 40,000 10,000 50,000 10,000 60,000 43,000 10,000 50,000 10,000 Telephone Other utilities Miscellaneous The independent company has bid $4,000,000 for the job.
Jax Construction Company plans to erect a new building. It will use part of the space for its own offices and lease the balance of the space to tenants. The company has two alternatives: (1) do its own construction work or (2) use an independent contractor. Cost estimates have been prepared showing the costs of operation for the coming year during which the new building will be constructed. The costs of constructing the building, if done by Jax, are included in that set of estimates. If the company does its own construction work, it will not be able to handle outside construction contracts that would contribute $500,000 to net income. The costs attributable to these outside contracts are excluded from the estimated costs of operation shown below. Estimated Costs to Estimated Costs to Operate - Constuction by Independent Operate (including Construction) - Construction by Jax Contractors (self) $7,000,000 4,800,000 400,000 780,000 55,000 47,000 106,000 91,000 $6,000,000 3,000,000 315,000 Materials Labour Indirect materials and supplies Supervision Taxes and insurance Heat and light Maintenance and repairs Truck and equipment operation Depreciation Travel 650,000 50,000 47,000 106,000 91,000 60,000 40,000 10,000 50,000 10,000 60,000 43,000 10,000 50,000 10,000 Telephone Other utilities Miscellaneous The independent company has bid $4,000,000 for the job.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Which of the two alternatives should be selected? Show all calculations. Are there any qualitative or non-financial factors that the firm should consider in the decision making process?
Transcribed Image Text:Jax Construction Company plans to erect a new building. It will use part of the space for its own offices
and lease the balance of the space to tenants. The company has two alternatives: (1) do its own
construction work or (2) use an independent contractor.
Cost estimates have been prepared showing the costs of operation for the coming year during which
the new building will be constructed. The costs of constructing the building, if done by Jax, are included
in that set of estimates.
If the company does its own construction work, it will not be able to handle outside construction
contracts that would contribute $500,000 to net income. The costs attributable to these outside
contracts are excluded from the estimated costs of operation shown below.
Estimated Costs to
Estimated Costs to
Operate -
Constuction by
Independent
Operate (including
Construction) -
Construction by Jax
Contractors
(self)
$6,000,000
3,000,000
315,000
650,000
50,000
47,000
106,000
91,000
60,000
40,000
10,000
50,000
10,000
$7,000,000
4,800,000
400,000
780,000
55,000
47,000
106,000
91,000
60,000
43,000
10,000
50,000
10,000
Materials
Labour
Indirect materials and supplies
Supervision
Taxes and insurance
Heat and light
Maintenance and repairs
Truck and equipment operation
Depreciation
Travel
Telephone
Other utilities
Miscellaneous
The independent company has bid $4,000,000 for the job.
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