1. The $14.5 million is made up of the following

Question
1. The $14.5 million is made up of the following cost categories: Direct contract costs ……………………………………………………………..$ 6,200,000 Government ships and helicopters  assigned to clean up and salvage ……………………………………………….4,500,000 Government supervisory ships assigned to general duty …………….2,000,000 Shore facilities—to support ships and helicopters ………………………….950,000 Administration—government  departments involved in cleanup and salvage …………………………………850,000                                                                                                                    $14,500,000 2. The “direct contract costs” represent the costs charged by various companies and government groups contracted by the government department for cleanup and salvage. Invoices are available to support the $6.2 million and have been signed by government officials to indicate that the services were provided. Included in the $6.2 million are invoices for $800,000, representing one-half of the $1.6 million billed by one supplier. The other half, $800,000, was charged to a government account and represented improvements to the harbour entrance. 3. The “government ships and helicopters” charge of $4.5 million represents the cost of ships and helicopters specifically assigned to the cleanup. They would normally be performing defence and limited commercial duties elsewhere. Therefore, the ships and helicopter were taken from specific assignments to perform the cleanup and salvage quickly. The $4.5 million is made up of Wages and benefits of crews Fuel for ships and helicopters ……………………………………………………1,050,000 Supplies for ships and helicopters ………………………………………………..500,000 Direct maintenance of ships during cleanup period ……………………..150,000 Depreciation of ships during cleanup period ………………………………..300,000                                                                                                                   $4,500,000 Includes pension costs of $250,000 and personal life insurance costs of $90,000. All crew members were employed by the armed forces of Canada. 4. The “government supervisory ships” charge of $2 million represents the cost of ships that were needed to coordinate the cleanup and direct commercial ships safely through the harbour. They also served to keep sightseeing vessels and other groups away from the wreck. These ships would have been assigned to general civilian rescue and coast-guard duties if they had not been at the location of the cleanup and salvage. The $2 million is made up of  Wages and benefits of crews …………………………………………………….$1,200,000* Fuel for ships and helicopters ………………………………………………………….270,000 Crew meals and related supplies ……………………………………………………….80,000 Overtime pay to crews for cleanup period ……………………………………….300,000 Direct maintenance of ships during cleanup period …………………………..50,000 Depreciation of ships during cleanup……………………………………………….100,000                                                                                                                      $2,000,000 Includes vacation pay of $80,000, pension costs of $70,000, and insurance and other employee benefits of $50,000. All crew members are government employees.  5. The “shore facilities” cost of $950,000 is primarily for the refuelling of ships and aircraft. Fuel used by direct-contract ships (not included in the $6,200,000) …………………………………………………………………………$600,000 Labour to service direct-contract ships …………………………………175,000 Labour to fuel government ships and helicopters …………………..75,000 Supplies used by government ships ……………………………………..100,000                                                                                                             $950,000 6. “Administration” costs of $850,000 include Armed forces personnel taken from other  duties and assigned to shore duties related to the cleanup ………………..$475,000* Estimated cost of telecommunications equipment  used for cleanup—(at commercial rates) ………………………………………………..225,000 Cost of assembling the cost data, for invoicing to the  shipping company; estimated,  using commercial rates for accounting services ………………………………………100,000 Legal advice on invoicing the shipping company ………………………………………..50,000                                                                                                                                   $ 850,000 Includes accrued vacation pay of $30,000, pension costs of $45,000, and other employee benefits of $40,000. These personnel would otherwise have been assigned to general duties. Prepare the memorandum to the partner by discussing the relevance of each of these costs. In your memorandum, determine an amount that you think should be claimed against the shipping company.

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