Computing Revenue and Gross Profit on Long-term Construction Contract

Supplier Corp. enters into a government contract in 2020 to provide computer equipment for $1.6 million. The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $2.24 million. The equipment is highly specialized and has no alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred in 2020 were $520,000 including unexpected cost overruns of $64,000 due to labor inefficiencies.

At the end of 2021, the estimate of total costs has increased to $1.2 million due to an increase in cost of materials. Actual costs incurred to date are $920,000, excluding year one inefficiencies.

a. Calculate (1) recognized revenue, (2) the gross profit, and (3) adjusted contract margin to be recorded in 2021.

Note: Round each of your answers to the nearest dollar.

1.	Recognized revenue	Answer
2.	Gross profit	Answer
3.	Adjusted contract margin	Answer

b. Calculate (1) cumulative recognized revenue, (2) cumulative gross profit, and (3) cumulative adjusted contract margin at the end of 2021.

Note: Round each of your answers to the nearest dollar.

1.	Cumulative recognized revenue	Answer
2.	Cumulative gross profit	Answer
3.	Cumulative adjusted contract margin	Answer