Intermediate: Contract costing A construction company is currently undertaking three separate contracts and information relating to these contracts for the previous year, together with other relevant data, is shown below.

The cost of operating the construction services department, which provides technical advice to each of the contracts, is apportioned over the contracts in proportion to wages incurred.
Contract STU is scheduled for handing over to the contractee in the near future and the site engineer estimates that the extra costs required to complete the contract in addition to those tabulated above, will total £138 000. This amount includes an allowance for plant depreciation, construction services and for contingencies.
Required:

(a) Construct a cost account for each of the three contracts for the previous year and show the cost of the work completed at the year end.
(9 marks)

(b) (i) Recommend how much profit or loss should be taken, for each contract, for the previous year. (7 marks)
(ii) Explain the reasons for each of your recommendations in

(b) (i) above.

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Contract price Balances brought forward al beginning of year Cost of work completed Material on site Written down value of plant nd machinery Wages accrued Profit previously transferred to profit loss a/c Contract Contract Contract Construction services dept MNO POR STU overhead (000) (2000) (1000) (000) 800 675 1100 190 370 25 35 170 12 2 15 Transactions during year. Material delivered to site 40 99 1801 Wages paid 20 47 110 8 Payments to subcontractors 35 Salaries and other costs 6 201 25 21 Written down value of plan issued to sites 90 15 59 transferred from sites Balances carried forward at the end of year Material on site Written down value of plant and machinery Wages accrued 70 110 Pre payments to subcontractors Value of work certified at end of year 15 90 390 950 Cost of work not certified at end of year 26