Calculate the settlement amount using the inventory basis for termination settlement. Calculate the settlement amount using the total cost basis.

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.

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.

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.

Calculate the settlement amount using the inventory basis for termination settlement. Calculate the settlement amount using the total cost basis.
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