A job has a contract value of $200,000 and is 60% complete. Actual costs incurred are $105,000 with an estimated $45,000 to complete. What is the projected profit or loss for this job?
Correct Answer
B) $50,000 profit
Total estimated costs are $105,000 (incurred) + $45,000 (to complete) = $150,000. Projected profit is $200,000 (contract) - $150,000 (total costs) = $50,000 profit.
Why This Is the Correct Answer
To calculate projected profit, determine total estimated project costs by adding actual costs incurred ($105,000) plus estimated costs to complete ($45,000), which equals $150,000. Then subtract total estimated costs from contract value: $200,000 - $150,000 = $50,000 projected profit. This method accounts for all project costs, both incurred and remaining.
Why the Other Options Are Wrong
Option A: $95,000 profit
This incorrectly calculates profit as contract value minus actual costs incurred only ($200,000 - $105,000 = $95,000), ignoring the remaining $45,000 needed to complete the project. This overstates profit by not accounting for future costs.
Option C: $150,000 profit
This appears to subtract only the estimated costs to complete from the contract value ($200,000 - $45,000 = $155,000), completely ignoring the $105,000 already spent. This calculation method is fundamentally flawed and grossly overstates the projected profit.
Option D: $45,000 profit
This simply uses the estimated costs to complete ($45,000) as the profit figure, which has no logical basis in profit calculation methodology. It ignores both the contract value and actual costs incurred in the calculation.
Memory Technique
Remember 'Total First, Then Subtract': Total estimated costs = Actual costs + Estimated to complete, then Profit = Contract value - Total estimated costs.
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