Reference no: EM132945093

SMDC Company has started construction work on a project with a fixed contract price of P4,000,000. SMDC expects to incur total costs of P3,000,000 on this project.

During the first year of the project, the following transactions occurred:

• Incurred cost of materials, labor and overhead used in the work, P2,400,000.
• Paid costs of materials purchased but set aside for use in a future date for this project, P200,000. These materials do not have any alternative use and cannot be sold to other parties.
• Paid and incurred rectification work no expected to be recovered, P260,000.
• Incurred general and administrative costs that are not reimbursable, P100.000.
• Incurred selling costs, P60,000.
• Incidental income from the sale of certain materials, P40,000. These specific materials were sold since it was considered surplus from the early phase of the construction.
• The engineers determined that the original estimate of costs did not include any expected warranty costs of P200,000.

Problem 1: Determine the profit for the first year.

A. P840,000
B. P715,000
C. P600,000
D. P220,000