Supplier Corp. enters into a government contract during the year to provide computer equipment for...
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Supplier Corp. enters into a government contract during the year to provide computer equipment for $4,000,000. The contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $2,800,000. The equipment is highly specialized and has no alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract cancellation. Actual costs incurred during the first year of the contract were $1,280,000 including unexpected cost overruns of $160,000 due to labor inefficiencies.
Assume that at the end of the second year of the contract, the estimate of total costs has increased to $3,000,000 million due to an increase in cost of materials. Actual costs incurred to date are $2,250,000, excluding year one inefficiencies. a. Calculate (1) recognized revenue, (2) the gross profit, and (3) adjusted contract margin to be recorded in the second year of the contract.
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