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  • Answer 3

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    NEHA SARDANA
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    The document summarizes the financial impact of accepting or rejecting a government contract. It shows that accepting the contract would decrease total revenue by $755,000 but reduce variable costs by the same amount, leaving contribution margin unchanged. However, fixed costs would remain the same, so accepting the contract would reduce overall income by $617,500. The recommendation is therefore to reject the government contract in order to maintain higher income.

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    The document summarizes the financial impact of accepting or rejecting a government contract. It shows that accepting the contract would decrease total revenue by $755,000 but reduce variable costs by the same amount, leaving contribution margin unchanged. However, fixed costs would remain the same, so accepting the contract would reduce overall income by $617,500. The recommendation is therefore to reject the government contract in order to maintain higher income.

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    3 views2 pages

    Answer 3

    Uploaded by

    NEHA SARDANA
    The document summarizes the financial impact of accepting or rejecting a government contract. It shows that accepting the contract would decrease total revenue by $755,000 but reduce variable costs by the same amount, leaving contribution margin unchanged. However, fixed costs would remain the same, so accepting the contract would reduce overall income by $617,500. The recommendation is therefore to reject the government contract in order to maintain higher income.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    of 2

    Without Government

    Contract govt regular Total Difference


    Revenue 17400000 1420000 15225000 16645000 -755000
    Variable Manufacturing Costs -7180000 -897500 6282500 -7180000
    Variable Marketing Costs -1100000 962500 962500
    Contribution Margin 9120000 522500 7980000 8502500 -617500
    Fixed Manufacturing Costs 1980000 1980000
    Fixed Marketing Costs 2310000 2310000
    Income 4830000 4212500 -617500

    Recommendation Government's offer should be rejected because it will reduce our income by 617500
    Revenue per unit 4350
    Fixed Costs Variable Costs
    fixed overhead 660 Variable Material 550
    fixed costs 770 Variable Labour 825
    Variable Overhead 420
    Marketing Costs 275
    Fixed cost for 3000 units 1980000
    Fixed Marketing cost for 3000 unit 2310000 Manufacturing Variable 1795
    Marketing Variable Cos 275

    e it will reduce our income by 617500

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