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VII - Input Measures - Cost-to-cost method versus Cost Recovery Method DJD Builders has a fixed price contract to build a waiting shed. The initial
VII - Input Measures - Cost-to-cost method versus Cost Recovery Method DJD Builders has a fixed price contract to build a waiting shed. The initial amount of revenue agreed is P528,000. At the beginning of the contract on January 1, 20x3 the initial estimate of the construction costs is P480,000. By the end of 20x3 the estimate of the total costs has risen to P484,800. During 20x4 the customer agrees to a variation with increases expected revenue from the contract by P12,000 and causes additional costs of P7,200. At the end of 20x4 there are materials stored on site for use during the following period which cost P6,000. DJD Builders have decided to determine the stage of completion of the contract by calculating the proportion that contract costs incurred for work to date bear to the latest estimated total contract costs. The contract costs incurred at the end of each year (costs incurred to date), billings and collections for each year were as follows: Year Direct and Allocable Costs to date Billings Collections 20x3 P126,048 P144,000 P120,000 20x4 370,080 (including materials in store) 240,000 228,000 20x5 492,000 156,000 192,000 Required: 1. Prepare the journal entries, under: a. Percentage of completion over time) method using cost-to-cost method b. Cost recovery method (also known as zero-profit approach) or point in time 2. Compute the due from/to customers: a. Percentage of completion (over time) method using cost-to-cost method b. Cost recovery method (also known as zero-profit approach) or point in time 3. Compute the gross profit. a. Percentage of completion (over time) method using cost-to-cost method b. Cost recovery method (also known as zero-profit approach) or point in time VII - Input Measures - Cost-to-cost method versus Cost Recovery Method DJD Builders has a fixed price contract to build a waiting shed. The initial amount of revenue agreed is P528,000. At the beginning of the contract on January 1, 20x3 the initial estimate of the construction costs is P480,000. By the end of 20x3 the estimate of the total costs has risen to P484,800. During 20x4 the customer agrees to a variation with increases expected revenue from the contract by P12,000 and causes additional costs of P7,200. At the end of 20x4 there are materials stored on site for use during the following period which cost P6,000. DJD Builders have decided to determine the stage of completion of the contract by calculating the proportion that contract costs incurred for work to date bear to the latest estimated total contract costs. The contract costs incurred at the end of each year (costs incurred to date), billings and collections for each year were as follows: Year Direct and Allocable Costs to date Billings Collections 20x3 P126,048 P144,000 P120,000 20x4 370,080 (including materials in store) 240,000 228,000 20x5 492,000 156,000 192,000 Required: 1. Prepare the journal entries, under: a. Percentage of completion over time) method using cost-to-cost method b. Cost recovery method (also known as zero-profit approach) or point in time 2. Compute the due from/to customers: a. Percentage of completion (over time) method using cost-to-cost method b. Cost recovery method (also known as zero-profit approach) or point in time 3. Compute the gross profit. a. Percentage of completion (over time) method using cost-to-cost method b. Cost recovery method (also known as zero-profit approach) or point in time
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