Question

Cara Fabricating Co. and Taso Corp. agreed orally that Taso would custom manufacture a compressor for Cara at a price of $120,000. After Taso completed the work at a cost of $90,000, Cara notified Taso that the compressor was no longer needed. Taso is holding the compressor and has requested payment from Cara. Taso has been unable to resell the compressor for any price. Taso incurred storage fees of $2,000. If Cara refuses to pay Taso and Taso sues Cara, the most Taso will be entitled to recover is:
(A) $92,000
(B) $120,000
(C) $105,000
(D) $122,000

Answer 1

Answer:

Answer is A

Explanation:

Since Cara promised to buy,  must cover all the expenses that  have generated to the other party for the order placed, that is the direct materials, the man hours, taxes that the manufacturer has had to face, transportation expenses, commissions, storage and could even be considered a percentage of fixed expenses (administration costs, plant use)

All these concepts are parts of the cost of production, so they must be added to determine how much the final production has cost.

In this case the cost of direct production is 90,000 plus 2,000 storage costs