In Early 2014, the Key West Company Signed a Contract

question 38

Multiple Choice

In early 2014, the Key West Company signed a contract for construction of an industrial park to be completed in three years. At that time, estimated total costs were $2,250,000, and estimated total revenues were $4,000,000. During 2014, Key West incurred costs of $960,000 and collected $1,100,000. In December 2014, Key West recalculated total costs for the project to be $3,200,000 while estimated total revenues remained unchanged. What amount of profit (loss) should be recognized by Key West for 2014, using the percentage-of-completion method?

• A) $266,667 profit
• B) $ 55,000 loss
• C) $240,000 profit
• D) $285,000 loss

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Definitions:

Purely Competitive

A market structure characterized by a large number of firms, easy entry and exit, and a homogeneous product.

Average Total Cost

The total cost of production divided by the total quantity produced, including both fixed and variable costs.

Pure Monopolist

A single seller in a market that sells a unique product with no close substitutes, controlling the market price.

Underallocates Resources

A situation where resources are not distributed efficiently, leading to potential waste and underproduction.