EXERCISE #3: MONSTER TERMINATION
You recently terminated two MONSTER System production contracts for the
convenience of the government. The system was developed for your agency, but
the agency head recently determined that additional units will not be required
because of a reduction in the agency mission.
1. Foster Enterprises submitted the following information related to an inventory basis settlement.
Table 5.7—Foster Enterprises Inventory Basis Settlement Information
Negotiated settlement expenses $8,750
Contract price for complete end items $62,500
Remainder of settlement amount $423,000
Contract price $871,250
Incurred costs before contract termination $500,000
Estimated cost to complete the contract if it had not been terminated $562,500
Calculate the settlement amount using the inventory basis for termination settlement.
2. Carlson Systems submitted the following information related to a total cost basis settlement.
Table 5.8—Carlson Systems Total Cost Basis Settlement Information
Negotiated settlement expenses $9,000
Remainder of settlement amount $445,000
Contract price $1,125,000
Incurred costs before contract termination $445,000
Estimated cost to complete the contract if it had not been terminated $805,000
Calculate the settlement amount using the total cost basis.
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