If the Completed-Contract Method Is Used,what Is the Basis for Determining

question 49

Multiple Choice

If the completed-contract method is used,what is the basis for determining the income to be recognized in the second year of a three-year contract?

• A) Cumulative actual costs incurred only
• B) Incremental cost for the second year only
• C) Latest available estimated costs
• D) No income would be recognized in year 2

---

Definitions:

Production Costs

The total expenses incurred in the process of manufacturing or producing goods, including labor, materials, and overhead costs.

Conversion Costs

Costs incurred during the transformation of raw materials into finished products, comprising of direct labor and manufacturing overhead.

Weighted-Average Method

A cost accounting method that calculates the cost per unit of inventory by considering both the cost of existing inventory and the cost of new inventory acquired, weighted by their respective quantities.

Process Costing System

is used in manufacturing where production is continuous, and costs are assigned to processes or departments, then averaged over units produced.