A Construction Company Uses the Percentage-Of-Completion Method for Long-Term Construction

question 47

Multiple Choice

A construction company uses the percentage-of-completion method for long-term construction contracts. A particular job was begun in 2010 and completed in 2012. During 2011, it appeared that the project would cost 25 percent more than originally expected. Data at the end of each year are given below:

The contract price was $700,000. Assuming the company properly recorded income in 2010, how much income should be recorded in 2011?

• A) $10,000
• B) $42,000
• C) $160,000
• D) $192,000

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Definitions:

Long Run

A period of time in which all factors of production and costs are variable, allowing companies to adjust all aspects of their operations.

Economic Profits

Economic profits are the financial gains that occur when the revenue from business activities exceeds the costs, expenses, and the opportunity costs of all resources employed.

Monopolistically Competitive

Describes a market structure where many firms sell products that are similar but not identical, leading to competition based on product differentiation, price, and marketing.

Fixed Costs

Costs that remain constant regardless of the amount of goods produced or sold, including rent, wages, and insurance premiums.