Question B Transcribed Image Text: Ken Owens Construction specializes in small additions and repairs. His normal charge is $400/day plus materials. Due to his physical

Question B Transcribed Image Text: Ken Owens Construction specializes in small additions and
repairs. His normal charge is $400/day plus materials. Due
to his physical condition, David, an elderly gentleman,
needs a downstairs room converted to a bathroom. Ken has
produced a bid for $5,300 to complete the bathroom. He
did not provide David with the details of the bid. However,
they are shown here.
Ken’s Bid Detail Dollars
Direct Material
$2,200
Direct Labor
1,700
Variable overhead
300
Fixed overhead
700
Profit
400
$5,300
A. The town’s social services has asked Ken if he could
reduce his bid to $4,200. Should Ken accept the counter
offer?
Current Bid
New Bid
Direct Material
$2,200
$2,200
Direct Labor
1,700
1,700
Variable overhead
300
300
Fixed overhead
700
Profit
400
$5,300
$4,200
B. How much would his income be reduced?
C. If the town’s social services guaranteed him another job
next month at his normal price, could he accept this job at
$4,200?

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