On October 1, Year 1, Little Co. enters into a contract with a customer to build a factory on the customer's land for $1,000,000. The construction of the factory is expected to be completed at the end of Year 5. Based on Little's accounting policies, the progress toward completion of the factory is measured using the input method based on costs incurred. During Year 1, Little incurred $450,000 in costs in respect to this contract and billed the customer for $600,000. At the end of Year 1, Little cannot reasonably est.

Question

Marley Cooke

Business

30 September, 12:37

On October 1, Year 1, Little Co. enters into a contract with a customer to build a factory on the customer's land for $1,000,000. The construction of the factory is expected to be completed at the end of Year 5. Based on Little's accounting policies, the progress toward completion of the factory is measured using the input method based on costs incurred. During Year 1, Little incurred $450,000 in costs in respect to this contract and billed the customer for $600,000. At the end of Year 1, Little cannot reasonably est.

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Addison Burch · Answer 1

A. 600,000

Explanation:

Although Little cannot reasonably estimate the total expected costs of the construction and cannot reasonably estimate the progress toward completion of the factory, BUT expects to recover the costs incurred in the construction; This reveals that this is a Cost-Plus contract

A Cost Plus Contract according to the international Financial Reporting Standards is A contract in which the contractor agrees to receive all the allowable cost of the contract plus a certain decided percentage of the allowable cost as profit.

Therefore Little can charge the FULL COST of the contract and an agreed margin