Mediocre Inc. has entered into a very profitable fixed price contract for constructing a high rise building over a period of three years. It incurs the following costs relating to the contract during the first year:
• Cost of material = $2.5 million
• Site labor costs = $2.0 million
• Agreed administrative costs as per contract to be reimbursed by the customer = $1 million
• Depreciation of the plant used for the construction = $0.5 million
• Marketing costs for selling apartments when they are ready = $1.0 million
Total estimated cost of the project = $18 million
The percentage of completion of this contract at the year end is
(a) 50% (= 6.0/18.0)
(b) 27% (= 4.5/16.5)
(c) 25% (= 4.5/18.0)
(d) 39% (= 7.0/18)