Use the Following Information for Questions

question 55

Multiple Choice

Use the following information for questions.
Eilert Construction Company had a contract starting April 2011, to construct a $15,000,000 building that is expected to be completed in September 2012, at an estimated cost of $13,750,000.At the end of 2011, the costs to date were $6,325,000 and the estimated total costs to complete had not changed.The progress billings during 2011 were $3,000,000 and the cash collected during 2011 was $2,000,000.Eilert uses the percentage-of-completion method.
-For the year ended December 31, 2011, Eilert would recognize gross profit on the building of

• A)$0.
• B)$527,083.
• C)$575,000.
• D)$675,000.

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Definitions:

Setup Cost

The expense incurred to prepare equipment, machinery, or a production facility for a manufacturing run or a project.

Carrying Cost

The total cost of holding inventory, including storage, insurance, depreciation, and opportunity costs.

Safety Stock

The additional quantity of inventory kept on hand to prevent stockouts caused by variability in demand or supply chain disruptions.

Lead Time

The duration between the initiation and completion of a production process or the time from ordering to delivery of a product.