On April 1, 2010, Dougherty Inc. entered into a cost-plus-fixed-fee contract to
ID: 2443428 • Letter: O
Question
On April 1, 2010, Dougherty Inc. entered into a cost-plus-fixed-fee contract to construct an electric generator for Altom Corporation. At the contract date, Dougherty estimated that it would take 2 years to complete the project at a cost of $2,300,000. The fixed fee stipulated in the contract is $517,500. Dougherty appropriately accounts for this contract under the percentage-of-completion method. During 2010 Dougherty incurred costs of $920,000 related to the project. The estimated cost at December 31, 2010, to complete the contract is $1,380,000. Dolan was billed $690,000 under the contract.Complete the schedule below to compute the amount of gross profit to be recognized by Dougherty under the contract for the year ended December 31, 2010.
Explanation / Answer
Contract price [$2,300,000 + $517,500]
$2,817,500
Cost to date
$920,000
Estimated cost
$1,380,000
Total estimated cost
$2,300,000
Estimated gross profit
$517,500
[$2,817,500,000 - $2,300,000]
Percentage of completion [$2,300,000 * 0.40]
$920,000
Gross profit recognized 2010 40% of $517,500 = $207,000
Contract price [$2,300,000 + $517,500]
$2,817,500
Cost to date
$920,000
Estimated cost
$1,380,000
Total estimated cost
$2,300,000
Estimated gross profit
$517,500
[$2,817,500,000 - $2,300,000]
Percentage of completion [$2,300,000 * 0.40]
$920,000
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