Ken Owens Construction specializes in small additions and repairs. His normal charge is $500/day plus materials. Due to his physical condition, David, an elderly gentleman, needs a downstairs room converted to a bathroom. Ken has produced a bid for $5,000 to complete the bathroom. He did not provide David with the details of the bid. However, they are shown here.
Ken Owens Construction specializes in small additions and repairs. His normal charge is $500/day plus materials. Due to his physical condition, David, an elderly gentleman, needs a downstairs room converted to a bathroom. Ken has produced a bid for $5,000 to complete the bathroom. He did not provide David with the details of the bid. However, they are shown here.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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
Transcribed Image Text:Ken Owens Construction specializes in small additions and repairs. His normal charge is
$500/day plus materials. Due to his physical condition, David, an elderly gentleman,
needs a downstairs room converted to a bathroom. Ken has produced a bid for $5,000 to
complete the bathroom. He did not provide David with the details of the bid. However,
they are shown here.
Ken's Bid Detail Dollars
Direct Material
$2,100
Direct Labor
1,700
Variable overhead
100
Fixed overhead
700
Profit
400
$5,000
A. The town's social services has asked Ken if he could reduce his bid to $3,900. Should
Ken accept the counter offer?
Current Bid
New Bid
Direct Material
$2,100
$2,100
Direct Labor
1,700
1,700
Variable overhead
100
100
Fixed overhead
700
Profit
400
$5,000
$3,900
No v
B. How much would his income be reduced?
C. If the town's social services guaranteed him another job next month at his normal
price, could he accept this job at $3,900?
Yes v
Feedback
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