Describe the two methods of charging for plant and machinery

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Reference no: EM131627932

MODULE TITLE: BUSINESS MANAGEMENT TECHNIQUES

TOPIC TITLE: COSTING TECHNIQUES

LESSON 4: CONTRACT COSTING

INTRODUCTION - In this lesson we will look at the main features of building, civil and mechanical engineering contracts, the process of pricing and controlling costs on contracts and the accounting treatment of profit.

YOUR AIMS - At the end of this lesson you should be able to:

detail the main features of a contract
understand normal tendering procedures and contract pricing methods
describe the methods of contract cost control
explain the convention of attributable profit
calculate attributable profit on a contract.

QUESTIONS -

1. List concisely the main features of a contract.

2. What information must be listed on a contract estimate sheet?

3. Briefly describe the two methods of charging for plant and machinery.

4. The following further information relates to the building contract being undertaken by Firbank Contractors Ltd, details of which are given on page 15:

	£
Work certified at 31.12.92	100,000
Cost incurred at 31.12.92	80,000
Estimated further costs to 31.12.96	145,000

Using the cost basis, calculate the profit attributable to the period 1.1.92 to 31.12.92.

5. Stevenson Building Services are undertaking a contract for which the following information is available:

Contract commenced on the 1st April 1991

	To 31^st March 1992 £	Estimated costs to complete £
Labour	5,000	10,000
Materials purchased	15,000	18,500
Materials issued from stores	2,250	250
Direct expenses	4,720	6,220
	£	£
Plant purchased (on 1.4.91)	15,000	........

Other information -

(i) Stock of material on site at 31.3.92: £1 210.

(ii) The plant was purchased for this contract. It is estimated that it will have a value of £4 290 at the end of the contract.

(iii) Total contract price is £85 200.

(iv) The contract is expected to last a total of 3 years.

Calculate the amount of attributable profit to be taken in the period to 31.3.92 by the cost basis method.

Reference no: EM131627932

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