Problem

Context-sensitive relevanceChapman Construction Company is a building contractor specializ...

Context-sensitive relevance

Chapman 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 Chapman 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 and costs associated with each job follow.

Cost Category

Job A

Job B

Contract price

$800,000

$700,000

Unit-level materials

243,700

223,450

Unit-level labor

249,150

305,000

Unit-level overhead

18,000

12,600

Supervisor’s salary

116,670

116,670

Rental equipment costs

24,900

27,300

Depreciation on tools (zero market value)

19,900

19,900

Allocated portion of companywide facility-sustaining costs

10,400

8,600

Insurance cost for job

18,200

18,200

Required

a.Assume that Chapman 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. Chapman’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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