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Which of the two alternatives should be selected? Show all calculations.

Which of the two alternatives should be selected? Show all calculations.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Which of the two alternatives should be selected? Show all calculations.

 

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.
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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