Supplier Corp. enters into a government contract during the year to provide computer equipment for $3.200.000. The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $2.240,000. The equipment is highly specialized and has no alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred during the first year of the contract were $1.024.000 including unexpected cost overruns of $128.000 due to labor inefficiencies. Assume that at the end of the second year of the contract, the estimate of total costs has increased to $2.400.000 million due to an increase in cost of materials. Actual costs incurred to date are $1,800,000, excluding year one inefficiencies.
Supplier Corp. enters into a government contract during the year to provide computer equipment for $3.200.000. The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $2.240,000. The equipment is highly specialized and has no alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred during the first year of the contract were $1.024.000 including unexpected cost overruns of $128.000 due to labor inefficiencies. Assume that at the end of the second year of the contract, the estimate of total costs has increased to $2.400.000 million due to an increase in cost of materials. Actual costs incurred to date are $1,800,000, excluding year one inefficiencies.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Computing Revenue and Gross Profit on Long-term Construction Contract
Supplier Corp. enters into a government contract during the year to provide computer equipment for $3,200,000. The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are
$2,240,000. The equipment is highly specialized and has no alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred during the first year
of the contract were $1,024,000 including unexpected cost overruns of $128,000 due to labor inefficiencies.
Assume that at the end of the second year of the contract, the estimate of total costs has increased to $2,400,000 million due to an increase in cost of materials. Actual costs incurred to date are $1,800,000, excluding year one inefficiencies.
a. Calculate (1) recognized revenue, (2) the gross profit, and (3) adjusted contract margin to be recorded in the second year of the contract.
1 Recognized revenue
$
2 Gross profit
$
3 Adjusted contract margin $
0 x
0 x
0 x
b. Calculate (1) cumulative recognized revenue, (2) cumulative gross profit, and (3) cumulative adjusted contract margin at the end of the second year of the contract.
1 Cumulative recognized revenue
$
2 Cumulative gross profit
$
3 Cumulative adjusted contract margin $
0 x
0 x
0 x
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