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

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

2014 2015 2016

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

Step-by-step 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)