In 2023, Oriole Contractors began construction on an office building. The building was expected to cost $46,510,000 in total and was expected to be completed in early 2025. The customer was to pay Oriole $48,610,000 for the building. Oriole was able to use percentage-of-completion accounting for the project, and at the end of 2023 had accumulated $11,627,500 in cost. Oriole estimated that the costs to complete the construction were in line with the original expected total costs. During 2024, there was a lumber shortage, a strike by construction workers, and various other incidents that dramatically raised costs in the construction industry. As a result, at the end of 2024, Oriole estimated that the office building would cost an additional $4,530,000 more than originally estimated. To the end of 2024, Oriole had spent $38,790,400 on constructing the office building.

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Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.