The Principal Disadvantage of Using the Percentage of Completion Method

question 30

Multiple Choice

The principal disadvantage of using the percentage of completion method of recognizing revenue from long-term contracts is that it

• A) Is unacceptable for income tax purposes
• B) May require that intraperiod tax allocation procedures be used
• C) Gives results bases upon estimates that may be subject to considerable uncertainty
• D) Is likely to assign a small amount of revenue to a period during which much revenue was actually earned

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Definitions:

Direct Labor

The cost of wages for employees who directly manufacture or produce goods.

Unfavorable

A term used to describe outcomes or variances that negatively impact a business financially or operationally.

Direct Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standardized expected quantity, valued at the standard cost per unit.

Direct Materials

Raw materials that are directly traceable to the production of a specific product and are significant in cost.