Joe Was a Contractor and Hired Subtrades to Help Build

question 71

Essay

Joe was a contractor and hired subtrades to help build his houses.Sam was a framer and had agreed to frame four houses for Joe for a set price.Joe was to supply the materials.After two houses were completed,Joe's suppliers increased the cost of lumber,and Joe told Sam that he could no longer pay him the amount that they'd agreed.Sam agreed to take 15 percent less for the other two jobs,which were then completed.During this time,regular payments were made from Joe to Sam,but the total amount received was 15 percent lower than the originally agreed on price for the last two jobs.Sam sued Joe for the original contract price,claiming that he'd received no consideration for his agreement to take less for the last two jobs.Explain what defences may be available to Joe under these circumstances and his likelihood of success.

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Definitions:

Deferred

A term referring to items or expenses that are not recognized immediately but postponed to a future date.

Absorption Costing

This approach to accounting incorporates all costs associated with manufacturing such as direct materials, direct labor, and variable as well as fixed overhead expenses into the price of a product.

Operations

Refers to the day-to-day activities involved in running a business that lead to the production of goods and provision of services.

Variable Costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in product costs.