In the Case of a Fixed Price Contract,AASB 111 Specifies

question 23

Multiple Choice

In the case of a fixed price contract,AASB 111 specifies four conditions that must all be met in order for the percentage of completion method to be applied.These conditions include:

• A) Costs related to the contract can be clearly identified and measured reliably.
• B) It is probable that the economic benefits arising from the contract will flow to the contractor.
• C) The entity commissioning the work has a good credit rating and is able to pay its debts.
• D) Costs related to the contract can be clearly identified and measured reliably and it is probable that the economic benefits arising from the contract will flow to the contractor.
• E) All of the given answers.

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Definitions:

Fixed Factory Overhead Volume Variance

The difference between the budgeted and actual fixed overhead costs attributed to variations in production volume.

Gross Profit

The financial difference between revenue and the cost of goods sold before other expenses are deducted.

Fixed Factory Overhead Rate

A predetermined rate used to allocate fixed overhead costs to produced goods based on a consistent basis, such as labor hours or machine hours.

Fixed Factory Overhead Volume Variance

A measure used in cost accounting to determine the difference between the budgeted and actual volume of production, affecting the allocation of fixed overhead costs.