Question

XYZ Company has bagged a fixed cost contract for the supply, installation, testing and commissioning of 200 computers of same specification at a cost of INR 600 lakhs. The company had estimated that it could supply, install, test and commission 10 computers per day so that the entire work would be completed in 20 days time. The project status was reviewed after the completion of 16 days. It was needed at the time of review that only 120 computers have been installed and the cost incurred was INR 380 lakhs. It was estimated at the time of the review that a sum of INR 260 lakhs would be required for completing the pending works of the remaining 80 computers. Make a performance analysis by arriving at the various connected parameters.

Answer 1

Total no of computer to be supplied under contract= 200

Conputer estimated to be supply per day = 10

Accordingly estimated supply of computer in 16 days= 16*10= 160

Actually Supplied in 16 days = 120

Now,

Total cost to be incurred in supplying 200 computers = INR 600 lakhs

Cost per computer would be = 600/200 = INR 3 Lakhs

Estimated cost of 120 computers installed till 16 day= 120*3lakhs= INR 360 Lakhs

Actaul Cost incurred in installing 120 computers = INR 380 Lakhs(Given)

Loss incurred till installation of 120 computers= 20 lakhs( 380-360)

Estimated cost of remaining 80 computers = 260 Lakhs(Given)

Total Estimated cost= 380+260= INR 640 Lakhs

Total Estimated Loss at the end of installation of 200 computers = 640 lakhs- 500 lakhs= INR 140 lakhs

Result:- As seen from the above working that the company has already incurred a loss of INR 20 Lakhs & expected to incurred a total estimated loss of INR 140 lakhs by the end of installation of 200 computers. So company should book a loss of INR 20 lakhs immediately & should make a provision for the remaining amount of estimate loss of INR 120 lakhs