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CMA Intermediate · Cost Accounting · Contract Costing

Rao Infra has a contract priced at Rs 80,00,000, with an escalation clause. Work certified is Rs 60,00,000. Escalation of Rs 4,00,000 has been accepted by the contractee and a separate extra work order of Rs 5,00,000 (cost Rs 4,00,000) is completed. Costs on the original work to date are Rs 48,00,000. Notional profit on original work and extra work is to be treated as part of one contract. Estimated further cost to complete the original work is Rs 12,00,000. What is the estimated total profit on the whole contract?

The estimated total profit is Rs 25,00,000. Revised contract value includes the original Rs 80,00,000, escalation Rs 4,00,000 and extra work Rs 5,00,000, totalling Rs 89,00,000. Total cost is Rs 48,00,000 plus Rs 12,00,000 to complete plus Rs 4,00,000 extra work, which is Rs 64,00,000.

  1. ARs 25,00,000
  2. BRs 9,00,000Correct
  3. CRs 20,00,000
  4. DRs 5,00,000

Explanation

Revised price = 80,00,000 + 4,00,000 escalation + 5,00,000 extra work = 89,00,000. Total cost = 48,00,000 + 12,00,000 + 4,00,000 = 64,00,000. Profit = 89,00,000 - 64,00,000 = 25,00,000. Option A is therefore correct, not B.

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