Reference no: EM132584996

Tang Construction Ltd. builds custom homes. The company recently bid on a project known as Butchart Street Developments (BSD). Tang's management has provided you with details of the bid and asked for your advice on how to recognize the revenue for this project.

Kitchens

Using Tang's standard pricing for custom cabinets and granite countertops, the kitchens are priced between $37,500 and $45,000. The price varies with the size of the kitchen, the amount of granite involved, and the type of wood and fittings used for the cabinets. At the standard pricing, the total bid would be $610,000. Tang quoted a price of $650,000 to the developer of BSD for building all the kitchens in 15 houses. As part of the bid, Tang offered to provide the developer of BSD with a $40,000 voucher that could be used toward a future construction project. The developer accepted the offer from Tang to build the kitchens.

Roofs

Tang also provided BSD a quote for building roofs for the 15 houses. In the BSD project, there are five simple roofs and 10 complex roofs. Tang quoted the developer of BSD $150,000 to build the 10 complex roofs and a separate bid of $55,000 to build the simple roofs. A condition of the "simple" roof contract is that Tang must purchase roofing trusses from BSD for $12,000. The trusses are required by Tang to complete other contracts that it is scheduled to work on. Tang can buy the trusses, which have a fair value of $9,000, from BSD or from another vendor, regardless of whether BSD awards the roofing contract to Tang. BSD accepted the offer from Tang for the simple and complex roofs.

Question 1: What is the total amount of revenue Tang will recognize for the BSD project?

a) $812,000

b) $815,000

c) $852,000

d) $855,000