CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Cruise Builders Inc., begins building a new ship for Happiness Cruise Lines in 2015. The project price is $12,000,000. The estimated total cost is $9,000,000 over three years. Here is the information for 2015 only: costs incurred, $3,000,000; estimated completion costs, $6,000,000; billings, $2,500,000; cash collected, $1,500,000. Which one of the following is the correct cost ratio to use in computing the profit for 2015 under the percentage-of-completion method?

A. 33%
B. 42%
C. 50%
Correct Answer: A

The correct cost ratio is $3,000,000 current year costs/$9,000,000 estimated total costs = 33%.

User Contributed Comments 7

User Comment
mrushdi pls explain what is estimated cost to completion is 8 Mn. Then how the ratio is computed.
Oarona The total estimated cost of the project is 9Mn not 8Mn, therefore the cost ratio is $3Mn/9Mn=33%.
Remember % of completion=current cost incurred/total estimated cost.
cleopatraliao whats the estimated completion cost doing here???why not use that one??
leftcoast estimated completion cost is an estimate of how much cost is remaining until the project is completed.

Estimated total cost - costs incurred = estimated completion costs.
johntan1979 So tricky! Keyword is "total".
Shaan23 To take it a step further we would use the 2.5M and not the 1.5million to calculate the Rev Recognized to date...
fzhou ugh "total" vs "completion"
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