M&M; Construction, Inc. entered into an agreement with Muskingum University to r
ID: 2561329 • Letter: M
Question
M&M; Construction, Inc. entered into an agreement with Muskingum University to refubish Memorial Hall. The contract price of the job was S10 million. The following information relates to the four years of construction: Actual Costs Incurred During Year Estimated cost to complete (as of the end of the year) 1 ear d year 3 year 4t year $2 million $2 million $2 million $3 million $3 million $4 million $5 million$0 uming gross profit is recognized over time, compute the amount of gross profit (or loss) that M&M; Construction, Inc. should recognize in each of the four years of construction. For partial credit, show ALL calculations First year (2 points) Second year (2 points)Explanation / Answer
Total contract price 10m total cost in 4 years 9m Estd Gross profit 1m (10m-9m) Gross pf % 10% (1m/10m) Year 1: 1 Determination of % completion: cost incurred till date 2m total cost 9m % completion 22% (2/9*100) As the percentage of completion is less than 25%, revenue is not recognised in year 1 Year 2: total cost incurred till year 2 4m (2m +2m) Percentage completion 44% (4m/9m*100) Gross profit to recognise (m$) 0.4444 (1m*44.44%) Year 3: total cost incurred till year 3 6m (2m +2m+2m) Percentage completion % 66.67 (6m/9m*100) Tot Gross profit till date (m$) 0.6667 (1m*66.67%) Gr Pf to recognise in 3rd year 0.222 (0.6667-0.4444) (total profit till year 3 - profit recognised in previous years) Year 4: total cost incurred upto year 4 9m (2m +2m+2m+3m) Percentage completion % 100% (9/9*100) Tot Gross profit till date (m$) 1m$ Gr Pf to recognise in 4th year 0.3333 (1-0.222-0.4444)
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