Assume that Funtime Corp. has agreed to construct a new playground for Durrey County for $2,300,000. Construction of the new playground will begin on March 17, 2012 and is expected to be completed in August 2013. At the signing of the contract Funtime Corp. estimates that the it will cost $1,600,000 to build the playground.
At the end of 2012 Funtime provided the following information about the project:
$\begin{array}{llcc}
& \text {Costsincurred } & \text {Estimated costs } \
\underline{ \text { Year} }& \underline{\text {to date } } & \underline{\text { remaining} }\
2012&\$1,000,000&\$800,000\

\end{array}$
-
If Funtime uses the percentage of completion to recognize revenue on the long-term contract how much gross margin should Funtime recognize in 2012?
A) $389,200
B) $278,000
C) $556,000
D) $0

Question

Assume that Funtime Corp. has agreed to construct a new playground for Durrey County for $2,300,000. Construction of the new playground will begin on March 17, 2012 and is expected to be completed in August 2013. At the signing of the contract Funtime Corp. estimates that the it will cost $1,600,000 to build the playground.
At the end of 2012 Funtime provided the following information about the project:
$\begin{array}{llcc}
&  \text {Costsincurred  } & \text {Estimated costs  }   \
\underline{ \text {  Year} }& \underline{\text {to date } } & \underline{\text {  remaining} }\
2012&\$1,000,000&\$800,000\

\end{array}$
-
 If Funtime uses the percentage of completion to recognize revenue on the long-term contract how much gross margin should Funtime recognize in 2012?
A) $389,200
B) $278,000
C) $556,000
D) $0

Quizplus · Accepted Answer

The percentage of completion is calculated as costs incurred to date divided by total estimated costs. For 2012, this is $1,000,000 / ($1,000,000 + $800,000) = 0.5556 or 55.56%. The total revenue is $2,300,000, so the revenue recognized in 2012 is 55.56% of $2,300,000, which is $1,278,800. The costs incurred are $1,000,000, so the gross margin is $1,278,800 - $1,000,000 = $278,800.

Assume That Funtime Corp - If Funtime Uses the Percentage of Completion to Playground

Assume That Funtime Corp -
If Funtime Uses the Percentage of Completion to Playground