Question

Streetside Construction decided to complete construction in 3 years. However, cutting back 1 year in construction schedule means an increase in total estimated costs. Assume that at beginning of year 3 total estimated costs to complete the job in three years were revised to $35,000,000. Under the percentage of completion method, the loss for year three would be:

Answer 1

No information regarding the percent of work already completed is given

Hence we can go by time based calculations

It was earlier fixed to complete the construction in 4 years however after cutting back 1 year Streetside construction has decided to finish it in 3 years

As no info regarding percentage of work finished is given we assume that 3/4 th of the work would have been completed by the end of third year if construction was for period of 4 years as decided initially

Based on time balance 25% of costs allocated for fourth year is now added back to 3rd year after rescheduling the time and balance 25% costs is the loss for 3rd year

So loss on based of percentage of completion for 3rd year=$35000000*3/4=$26250000

=$35000000-$26250000=$8750000