Which of the following is an input method for recognizing revenue over time? a. units-produced method...

Which of the following is an input method for recognizing revenue over time?

a.

units-produced method

b.

milestones-reached method

c.

cost-to-cost method

d.

results-achieved method

Expert Solution

Correct answer---------(c) cost-to-cost method.

.

In cost-to-cost method the revenues is recognized over time using percentage of completion. Total cost incurred is divided by total estimated cost to be incurred to calculate the % completed and then gross profit as well as revenue is recognized.

See the below chart for better understanding

		2021	2022
A	Contract Price	$ 10,000,000	$ 10,000,000
B	Cost Incurred to Date	$ 2,542,000	$ 6,352,000
C	Estimated cost yet to be incurred to complete the contract	$ 5,658,000	$ 0
D = B+C	Total Cost	$ 8,200,000	$ 6,352,000
E = (D/B) x 100	% of Completion	31%	100%

F = A x E	Revenue to date	$ 3,100,000	$ 10,000,000
G	Revenue of Previous year	$ 0	$ 3,100,000
H = F - G	Net Revenue this year	$ 3,100,000	$ 6,900,000

I	Cost to date	$ 2,542,000	$ 6,352,000
J	Cost to date of previous year	$ 0	$ 2,542,000
K = I - J	Net Cost for the year	$ 2,542,000	$ 3,810,000

L = H - K	Gross Profits	$ 558,000	$ 3,090,000

ekkarill92 answered 2 years ago

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