Look-Back Interest May Be Required on Long-Term Contracts If Actual

question 105

Multiple Choice

Look-back interest may be required on long-term contracts if actual total costs had been employed in determining gross profit rather than estimated costs in earlier years of the contract.The interest will not be assessed if

• A)the completed contract method is used.
• B)the contract is completed within two years of the commencement date.
• C)the contract price is less than $1 million.
• D)All of the above are correct.

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Definitions:

Marginal Revenue

This refers to the additional income generated from the sale of one more unit of a good or service.

Average Cost

the total cost of production divided by the number of units produced, used to evaluate the efficiency of production processes.

Producing Units

Departments or entities within an organization responsible for the creation of goods or provision of services.

Marginal Revenue (MR)

The increase in revenue that results from the sale of one additional unit of a product or service.