Joined: 18 Aug 2009 Location: United States
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Posted: 23 Apr 2010 at 15:30 | IP Logged
Faber Company was contracted to construct the Acme Building at a total contract price of $40,000,000. The company uses the percentage of completion method and anticipated a 10 percent gross profit on January 1, 20X1, the date the contract began. At December 31, 20X2, the company had recognized $1,200,000 in inception to date profit. Assuming the job was 40 percent complete, by what amount had total estimated project costs increased?
The answer is 1,000,000
Can someone help me out? This question put me off guard...Thanks!
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Joined: 24 Oct 2009 Location: United States
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Posted: 24 Apr 2010 at 05:42 | IP Logged
First of all, there is a formula to remember
Anticipated GP x % completed = GP recognized. For year 2, we have
X (anticipated GP) x 0.4 (%completed)=1,200,000 (GP recognized. So, we have 3 mil anticipated GP. For year one, we have 4 mil anticipated GP. We have a decrease in GP for year 2 and hence, more expenses.
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Topic: Percentage of completion
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