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Suppose that you have been asked to price an 8-month external project.

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Suppose that you have been asked to price an 8-month external project. Direct labor is estimated at $100,000;per month, plus a 100% overhead rate. The total labor termination liability in any particular month;includes, of course, the total amount (100%) of the current month?s labor expense (including overhead) plus;(with the exception of the final month) a penalty of 80% of the following month?s labor expense (including;overhead).;So the total accumulated labor liability at any point during the project is equal to the accumulated labor;expenses accrued up to the previous month, plus the current month?s labor termination liability.;There are two material resources. Material A will cost $100,000, payable 30 days net. This material is;needed at the end of the 5th month and has a 4-month lead time. The termination liability on Material A in;any particular month is as follows;1-30 days after ordering: 25%;31-60 days after ordering: 50%;>60 days until the expense is paid in full: 100%;after the expense has been paid in full, there is no additional termination liability.;Material B will cost $200,000, payable on delivery. This material is needed at the end of the 7th month and;has a 3-month lead time. The termination liability on Material B in any particular month is as follows;1-30 days after ordering: 50%;>30 days until the expense is paid in full: 100%;after the expense has been paid in full, there is no additional termination liability.;To simplify the analysis, assume that all 8 months identically contain exactly 30 days. Also assume that any;payment or liability that occurs on a month boundary should be assigned to the month that falls before this;boundary (not the one that comes after the boundary). Assume that you can neglect profits. Assume that the;customer has agreed to buy this project and pay, at the end of each month, 100% of all costs incurred during;that month. Assume that the project is guaranteed to execute precisely on schedule.;1. Based on this information, how much burdened labor cost would the customer be obligated to pay at the;end of the 1st month (assuming that the project had not been terminated)?;a. $150,000;b. $0;c. $200,000;d. $160,000;2. For the same project, how much additional labor termination liability would be added to the burdened;labor cost to calculate the customer?s total labor liability at the end of the 1st month if the customer should;decide to terminate the project at that point?;a. $200,000;b. $50,000;c. $0;d. $160,000;PROJ522 ? Cost, Pricing, Scheduling, and Control;Page 2 of 2;3. For the same project, what is the customer?s total accumulated labor liability at the end of the 2nd month if;the customer should decide to terminate the project at that point? (Hint: They would be responsible for;covering 2 months of burdened labor costs incurred plus one month of additional termination liability.);a. $720,000;b. $560,000;c. $320,000;d. $400,000;4. For the same project, what is the customer?s total accumulated labor liability at the end of the 3rd month if;the customer should decide to terminate the project at that point? (Hint: They would be responsible for;covering 3 months of burdened labor costs incurred plus one month of additional termination liability.);a. $600,000;b. $480,000;c. $560,000;d. $760,000;5. For the same project, what is the customer?s total accumulated material liability at the end of the 4th;month if the customer should decide to terminate the project at that point?;a. $200,000;b. $25,000;c. $75,000;d. $100,000;6. For the same project, what is the customer?s total accumulated material liability at the end of the 5th;month if the customer should decide to terminate the project at that point?;a. $300,000;b. $0;c. $200,000;d. $100,000;7. For the same project, what is the customer?s total accumulated liability (including both material and;labor) at the end of the 7th month if the customer should decide to terminate the project at that point?;a. $1,560,000;b. $1,860,000;c. $1,700,000;d. $1,900,000;8. For the same project, what is the customer?s total accumulated liability (including both material and;labor) at the end of the 8th month if the customer should decide to terminate the project at that point?;a. $1,760,000;b. $2,060,000;c. $1,900,000;d. $1,600,000

 

Paper#32768 | Written in 18-Jul-2015

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