Which Statement Is Correct About the Impact of Estimation Errors

question 26

Multiple Choice

Which statement is correct about the impact of estimation errors on construction contracts?

• A)Underestimating future costs decreases the percentage complete ratio.
• B)Overestimating future costs increases the percentage complete ratio.
• C)Underestimating future costs increases the profit recognized in future periods.
• D)Underestimating future costs increases the profit recognized in the current period.

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Definitions:

Total Revenue

The income that a company generates from its business activities, typically from the sale of goods and services before any expenses are deducted.

Break-Even Point

The juncture where a company's overall expenses match its total income, leading to neither a profit nor a loss.

Shutdown Point

The level of business operations where a company cannot cover its variable costs by producing, leading to a pause or cessation of production.

Break-Even Point

The point at which total costs and total revenue are equal, meaning no net gain or loss is incurred from production and sales.