Computation of contract profit A company has been carrying out work on a number of building contracts (including Contract ABC) over the six-month period ended 31 May 2002. The following information is available:

Contract ABC commenced on | September 2001.
As at 30 November 2001 cumulative costs on the contract, held in work-in-progress, totalled £1.063 m (including overheads).
The company confidently predicts that further cost after 31 May 2002 to complete Contract ABC on time (including overheads) will not exceed £0.937 m. Overheads incurred over the six-month period to 31 May 2002, which are to be apportioned to individual contracts are:

Required:

(a) (i) Apportion overheads to Contract ABC for the six-month period to 31 May 2002 (to the nearest £000 for each overhead item).
(6 marks)
(ii) Determine the expected profit/loss on Contract ABC, and the amount of profit/
loss on the contract that you recommend be included in the accounts of the company for the six-month period to 31 May 2002.

(b) The company is introducing a service costing system into its stores operations department.
Outline the key factors to consider when introducing the service costing system.

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All Contracts (including ABC) 10 Contract ABC Number of contracts worked on in the six months to 31.5.02 Value Duration Contract months Direct labour costs in the period Raw material costs in the period Distance from base Value of work certified at 31.5.02 76.2 m 8-22 months (average 13 months) 531 9.762 m 10.817 m 16 kilometres (average) 6.4 m 11 months 6 1.0.17 m 1.456 m 23 kilometres 5.180 m