Robin Construction Company Began a Long-Term Contract in 2016

question 59

Multiple Choice

Robin Construction Company began a long-term contract in 2016.The contract price was $800,000.The estimated cost of the contract at the time it was begun was $500,000.The actual cost incurred in 2016 was $350,000.The contract was completed in 2017 and the cost incurred that year was $125,000.Under the percentage of completion method:

• A)Robin should report $300,000 of income in 2016.
• B)Robin should report $90,000 of income in 2017.
• C)Robin will receive interest (under the lookback method)on the underpayment of taxes in 2016.
• D)Robin should report $325,000 of income in 2016.
• E)None of the above is correct.

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Definitions:

AFC

Average Fixed Cost, which is the fixed cost of production divided by the quantity of output produced, illustrating how fixed costs dilute over larger production volumes.

AVC

AVC stands for Average Variable Costs, referring to the total variable costs of production divided by the quantity of output produced, indicating how variable costs per unit change with output levels.

ATC

The cost per unit of output, calculated by dividing the total costs (both fixed and variable) by the total quantity produced; identical to Average Total Cost.

MC

Marginal Cost; the change in total production cost that arises when the quantity produced is incremented by one unit.