Question
a) $2.0 million In early 20X1, Textron Inc. entered into an agreement with Scantech Ltd. for the construction of a new office building. Construction is
a) $2.0 million
In early 20X1, Textron Inc. entered into an agreement with Scantech Ltd. for the construction of a new office building. Construction is expected to take three years to complete. The initial total estimated cost of the building was $28 million, and the price of the contract was set at $38 million. At December 31, 20X1, the total cumulative cost incurred was $18 million. Due to increasing costs of materials, the total estimated cost of the project at the end of 20X1 was $31 million. By the end of the 20X2 fiscal year, an additional $9 million of costs was incurred. At December 31, 20X2, the total estimated cost of the project remained the same as at December 31, 20X1.
There is an answer:
Working
Percentage of Gross profit on cost:
=[(38-31) 31]100
= 22.58%
Thus, for 20X2
= 922.58%
=$ 2 million (rounded off)
However, i dont understand why was used estimated cost instead of occurred cost.
And is there any other solutions.
Thank you
(38-18)/38 *100% = 52.63%
And then 9 * 52.63% = 4.7
Eventhough we dont have this options (maybe c) closer)
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