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Stephenson Company Is Trying to Decide Which One of Two

question 104

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Stephenson Company is trying to decide which one of two contracts it will accept. The costs and revenues associated with each are listed below:  Contract X  Contract Z  Contract Revenue $200,000$260,000 Materials 10,00010,000 Labor 88,000120,000 Depreciation on Equipment 8,00010,000 Cost Incurred for Consulting Advice 1,5001,500 Allocated Portion of Overhead 5,0003,000\begin{array} { | l | r | r | } \hline & \text { Contract X } & \text { Contract Z } \\\hline \text { Contract Revenue } & \$ 200,000 & \$ 260,000 \\\hline \text { Materials } & 10,000 & 10,000 \\\hline \text { Labor } & 88,000 & 120,000 \\\hline \text { Depreciation on Equipment } & 8,000 & 10,000 \\\hline \text { Cost Incurred for Consulting Advice } & 1,500 & 1,500 \\\hline \text { Allocated Portion of Overhead } & 5,000 & 3,000 \\\hline\end{array} The equipment was purchased last year and has no resale value. Which of these amounts is relevant for the selection of one contract over another?


Definitions:

Straight-line Amortization

An accounting method of incrementally reducing the cost value of an intangible asset over its useful life.

Interest Payment

The payment a borrower makes to a lender as compensation for the use of borrowed money.

Journal Entry

A journal entry is a record of a financial transaction in the accounting records, showing the accounts and amounts to be debited and credited.

Discount on Bonds Payable

The difference between the face value of a bond and the price for which it sells when the bond's market value is lower than its face value.

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