### CFA Practice Question

There are 534 practice questions for this study session.

### CFA Practice Question

A company has undertaken a construction contract for \$6,700,000, spread over three years with a projected gross profit of 40%. In the first quarter of the first year, the firm will book the following revenue and cost on the basis of the percentage-of-completion method:
A. revenues of \$558,333 and production costs of \$223,333
B. revenues of \$558,333 and production costs of \$335,000
C. revenues of \$2,233,333 and production costs of \$893,333
Explanation: According to the percentage-of-completion method, a firm books revenue in proportion to work completed. On a three-year contract, 1/12th of the work would be completed in the first quarter of the first year, assuming uniform production. On this basis, the company will book a revenue of \$558,333 (= \$6,700,000/12) and a cost of 60% of this amount or \$335,000 ( = \$558,333 x 0.6). The cost of 60% is arrived at on the basis of the 40% gross profit margin, by subtracting the latter from 100%.