A contractor has the following for a specific project: Original contract $200,000, approved change orders $25,000, costs incurred to date $180,000, estimated costs to complete $30,000. What is the projected profit/loss for this project?
Correct Answer
B) $15,000 profit
Total contract value = $200,000 + $25,000 = $225,000. Total estimated costs = $180,000 + $30,000 = $210,000. Projected profit = $225,000 - $210,000 = $15,000 profit.
Why This Is the Correct Answer
To calculate projected profit/loss, you must first determine the total contract value by adding the original contract amount to approved change orders ($200,000 + $25,000 = $225,000). Then calculate total estimated project costs by adding costs incurred to date plus estimated costs to complete ($180,000 + $30,000 = $210,000). The projected profit is the difference between total contract value and total estimated costs ($225,000 - $210,000 = $15,000 profit).
Why the Other Options Are Wrong
Option C: $45,000 profit
This incorrectly shows a loss instead of profit, likely from subtracting the contract value from the costs rather than costs from contract value, or from failing to include approved change orders in the total contract value calculation.
Option D: $15,000 loss
This amount ($45,000) would result from incorrectly calculating either the total contract value or total costs, possibly by not including the estimated costs to complete ($30,000) in the total cost calculation.
Memory Technique
Remember 'RICE': Revenue (contract + changes) minus Incurred costs minus Estimated remaining costs = profit/loss
Reference Hint
Look up project cost control and profit/loss calculations in the Business and Finance Management chapter of your contractor reference manual
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