Decision on which of two mutually exclusive contracts to accept


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Decision on which of two mutually exclusive contracts to accept 1 answer below » Decision on which of two mutually exclusive contracts to accept A company in the civil engineering industry with headquarters located 22 miles from London undertakes contracts anywhere in the United Kingdom. The company has had its tender for a job in north-east England accepted at £288 000 and work is due to begin in March. However, the company has also been asked to undertake a contract on the south coast of England. The price offered for this contract is £352 000. Both of the contracts cannot be taken simultaneously because of constraints on staff site management personnel and on plant View complete question » Decision on which of two mutually exclusive contracts to accept A company in the civil engineering industry with headquarters located 22 miles from London undertakes contracts anywhere in the United Kingdom. The company has had its tender for a job in north-east England accepted at £288 000 and work is due to begin in March. However, the company has also been asked to undertake a contract on the south coast of England. The price offered for this contract is £352 000. Both of the contracts cannot be taken simultaneously because of constraints on staff site management personnel and on plant available. An escape clause enables the company to withdraw from the contract in the north-east, provided notice is given before the end of November and an agreed penalty of £28 000 is paid. The following estimates have been submitted by the company’s quantity surveyor: Cost estimates North-east South coast (£) (£) Materials: In stock at original cost, Material X 21600 In stock at original cost, Material Y 24800 Firm orders placed at original cost, Material X 30400 Not yet ordered — current cost, Material X 60000 Not yet ordered — current cost, Material Z 71200 Labour — hired locally 86000 110000 Site management 34000 34000 Staff accommodation and travel for site management 6800 5600 Plant on site —depreciation 9600 12800 Interest on capital, 8% 5120 6400 Total local contract costs 253520 264800 Headquarters costs allocated at rate of 5% on total contract costs 12676 13240 266196 278040 Contract price 288000 352000 Estimated profit 21804 73960 Notes. (a) to present comparative statements to show the net benefit to the company of undertaking the more advantageous of the two contracts; (b) to explain the reasoning behind the inclusion in (or omission from) your comparative financial statements, of each item given in the cost estimates and the notes relating thereto. View less » Jun 10 2014 05:54 PM

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