Question

Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,820,000. The project was begun in 2020 and completed in 2021. Cost and other data are presented below:

	2020			2021
Costs incurred during the year	$	518,000		$	1,120,000
Estimated costs to complete		962,000			0
Billings during the year		410,000			1,410,000
Cash collections during the year		310,000			1,510,000

Assume that Beavis recognizes revenue on this contract over time according to percentage of completion.

Required:
Compute the amount of gross profit recognized during 2020 and 2021.

Answer 1

Solution

	2020	2021
Revenue	$                637,000	$        1,183,000
Gross profit	$                119,000	$              63,000

Working

		2020	2021
A	Contract Price	$ 1,820,000	$ 1,820,000
B	Cost Incurred to Date	$ 518,000	$ 1,638,000
C	Estimated cost yet to be incurred to complete the contract	$ 962,000	$ 0
D = B+C	Total Cost	$ 1,480,000	$ 1,638,000
E = (D/B) x 100	% of Completion	35%	100%
F = A x E	Revenue to date	$ 637,000	$ 1,820,000
G	Revenue of Previous year	$ 0	$ 637,000
H = F - G	Net Revenue this year	$ 637,000	$ 1,183,000
I	Cost to date	$ 518,000	$ 1,638,000
J	Cost to date of previous year	$ 0	$ 518,000
K = I - J	Net Cost for the year	$ 518,000	$ 1,120,000
L = H - K	Gross Profits	$ 119,000	$ 63,000