Relevant Cost Information
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Overbey 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 Overbey 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 in cost associated with each job follow.
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A. Assume that Overbey has decided to accept one of the two jobs. Identify the information relevant to selecting one job versus the other. Recommend which job to accept and support your answer with appropriate computations.
B. Assume that job A is no longer available. Overbey's choice is to accept or reject job B alone. Identify the information relevant to this decision. Recommend whether to accept or reject job B. Support your answer with appropriate computations.
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Solution Summary
This solution helps go through relevant cost information within the context of management accounting.
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Part A)
Relevant cost for decision making:
COST .......................................JOB A.....JOB B
Unit-level materials.................243,700......223,450
Unit-level labor........................249,150.....253,750
Unit-level overhead...................18,000.......12,600
Rental equipment costs............24,900.......27,300
Total Cost.............................$535,750....$517,100 ...
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