Question

A project begins in January 2014; it is to be completed in October 2016. The contract price is $3,900 and the estimated total cost of the project is $3,000. Additional data for the project is provided below:

2014 2015 2016
Costs Incurred To Date $300 $2,400 $4,200
Estimated cost to Complete 2,700 1,600
Estimated Total Cost $3,000 $4,000 $4,200

Percentage of completion [PC]= (Costs incurred to date)/(Estimated total cost)

Required:
Compute the gross profit/loss recognized for each year under the PC method.

Answer 1

Answer:

The Gross profit/loss recognized for each year under the PC method:

                                2014        2015          2016

Gross profit(loss)     $90        $240         ($630)

Explanation:

a) Data and Calculations:

Project's contract price = $3,900

Estimated total cost of the project = $3,000

                                                2014    2015      2016

Costs Incurred To Date         $300  $2,400   $4,200

Estimated cost to Complete 2,700     1,600       0

Estimated Total Cost          $3,000  $4,000  $4,200

Percentage of completion [PC]= (Costs incurred to date)/(Estimated total cost)

                                                2014                2015                   2016

Percentage of completion: $300/$3,000   $2,400/$4,000  

Percentage of completion:    10%                  60%                  30% (100 - 70)

Revenue Allocation:                   2014           2015           2016        Total

2014   $390 (10% of $3,900)   $390                                                $390

2015 $2,340 (60% of $3,900)                    $2,340                       $2,340

2016 $1,170 (30% of $3,900)                                           $1,170      $1,170

Total Revenue                                                                                $3,900

Actual costs incurred             ($300)         ($2,100)      ($1,800)  ($4,200)

Gross profit                               $90              $240         ($630)     ($300)