Illustrates the point that the related cost is normally a balancing figure derived from the relationship between reported turnover and attributable profit. The statement does not deal with the situation where related costs exceed actual costs. Suppose that we have the following for the first year of a contract:
|
£ |
|
|
Turnover |
200 000 |
|
Related cost |
160 000 |
|
Attributable profit |
£40 000 |
|
Actual cost to date |
£130 000 |
In practice it is likely that the turnover figure would be reduced to £170 000 to make the equation balance.