MODULE TITLE: BUSINESS MANAGEMENT TECHNIQUES
TOPIC TITLE: COSTING TECHNIQUES
LESSON 4: CONTRACT COSTING
INTRODUCTION - In this lesson we will look at the main features of building, civil and mechanical engineering contracts, the process of pricing and controlling costs on contracts and the accounting treatment of profit.
YOUR AIMS - At the end of this lesson you should be able to:
- detail the main features of a contract
- understand normal tendering procedures and contract pricing methods
- describe the methods of contract cost control
- explain the convention of attributable profit
- calculate attributable profit on a contract.
QUESTIONS -
1. List concisely the main features of a contract.
2. What information must be listed on a contract estimate sheet?
3. Briefly describe the two methods of charging for plant and machinery.
4. The following further information relates to the building contract being undertaken by Firbank Contractors Ltd, details of which are given on page 15:
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£
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Work certified at 31.12.92
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100,000
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Cost incurred at 31.12.92
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80,000
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Estimated further costs to 31.12.96
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145,000
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Using the cost basis, calculate the profit attributable to the period 1.1.92 to 31.12.92.
5. Stevenson Building Services are undertaking a contract for which the following information is available:
Contract commenced on the 1st April 1991
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To 31st March 1992 £
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Estimated costs to complete £
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Labour
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5,000
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10,000
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Materials purchased
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15,000
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18,500
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Materials issued from stores
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2,250
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250
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Direct expenses
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4,720
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6,220
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£
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£
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Plant purchased (on 1.4.91)
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15,000
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........
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Other information -
(i) Stock of material on site at 31.3.92: £1 210.
(ii) The plant was purchased for this contract. It is estimated that it will have a value of £4 290 at the end of the contract.
(iii) Total contract price is £85 200.
(iv) The contract is expected to last a total of 3 years.
Calculate the amount of attributable profit to be taken in the period to 31.3.92 by the cost basis method.