Question

Your company produces mass spectrometers for sale to colleges and universities throughout the United States. On February 12, the University of Washtenaw contacts your company to purchase 12 mass spectrometers at $1,000,000 per unit. You enter into a contract with the university on March 1 under those terms, along with a delivery date of December 1. On April 10, you receive a letter from the university stating that, due to ambiguities in the contract language, they believe you are only owed $10,000,000. Specifically, Washtenaw states, "please find enclosed a check for $10,000,000 for payment in full, check marked as such. Also, this is the total amount of our budget. We would be more agreeable to cancelling the contract than to have to come up with another $2,000,000." Your company has not yet started production on the spectrometers. What are your options and why?

Answer 1

Answer:

As the Company has received a Cheque of $10,000,000 for payment in full. The Company though have not started the production it can consider such amount and cancel the contract and being a misc Income in its profit and loss account.

Though the product is being sold to an university and such organisation work on No profit no loss situation hence it can consider manufacturing 10 units and selling such units to the university at least the university also does not incur a loss of such a huge amount.