Reference no: EM133047033

Question - 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.

Required - Determine the profit for the first year.

A. P840,000

B. P715,000

C. P600,000

D. P220,000