In Year 1 a Contractor Agrees to Build a Building

question 41

Multiple Choice

In year 1 a contractor agrees to build a building for $2,500,000 by the end of year 2.The builder's cost is estimated to be $1,800,000.The actual costs year 1 are $900,000 and year 2's actual costs are $1,300,000.Under the completed contract method,the gross profit for year 1 is

• A)$0.
• B)$300,000.
• C)$350,000.
• D)$700,000.

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Definitions:

Average Total Cost (ATC)

Total cost divided by output.

Average Variable Cost (AVC)

Variable cost divided by output.

Average Total Cost

The total cost of production divided by the quantity produced, indicating the average cost per unit of output.

Average Variable Cost

Average variable cost (AVC) refers to the total variable costs per unit of output, covering expenses that change with the level of production, such as materials and labor.