Question

In Year 1, a contractor agrees to build a building for $850,000 by the end of Year 2. The builder's cost is estimated to be $400,000. The actual costs for Year 1 are $240,000 and Year 2's actual costs are $180,000. Under the percentage of completion method Year 1's gross profit is

Answer 1

Answer:

Under the percentage of completion method Year 1's gross profit is $270000.

Explanation:

Percentage of completion = Cost incurred upto date / total cost

= $240,000/$400,000

= 60%

Estimated gross profit = Contract price - Estimated cost

                                     = $850,000 - $400,000

                                     = $450000

Year 1 gross profit = $450000*60% = $270000

Therefore, Under the percentage of completion method Year 1's gross profit is $270000.