Question

Tripoli Consulting provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients. It incurred the following labor costs on services for three corporate clients during March 2018:

	Direct Labor
Contact 1	$9,000
Contract 2	$3,600
Contract 3	$14,400
TOTAL	$27,000

Tripoli allocated March overhead costs of $13,500 to the contracts based on the amount of direct labor costs incurred on each contract.

a. Assuming the revenue from Contract 3 was $40,000, what amount of income did Tripoli earn from this contract?
b. Based on the preceding information, will Tripoli report finished goods inventory on its balance sheet for Contract 1? If so, what is the amount of this inventory? If not, explain why not.

Answer 1

Calculation of Costs of each Contract
S NO	Particulars	Contract 1	Contract 2	Contract 3	Total
A	Direct Labor	$     9,000.00	$     3,600.00	$   14,400.00	$ 27,000.00
B	Prop of Direct Labor	0.33	0.13	0.53	1
C (B*$13500)	Overheads Allocation	$     4,500.00	$     1,800.00	$     7,200.00	$ 13,500.00
D (A+C)	Total Cost of Contract	$   13,500.00	$     5,400.00	$   21,600.00	$ 40,500.00
Requirement 1
If the Revenue of Contract 3 is $40000, then Income from Contract 3 = $40000-$21600 = $18400
Requirement 2
Tripoli will report Inventory in its Balance Sheet under appropriate Head based on its completion percentage at $13500
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