contract costing.ppt

7/27/2019 Contract Costing.ppt

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CONTRACT

COSTING


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Is generally applied to contractors who undertakeconstructional work and engineering work like roads, dams,

buildings, canals railway lines etc.

Contract Costing defined:

Contract costing is defined as that form of specific order costing

where in work is carried out in accordance with customers

special requirement and each order is of long duration


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Features of Contract Costing:

Contd.

Contract work is performed on the basis of agreement

between the contractor and contractee. Contract generally takes more than one year (long

period) for completion.

For cost calculation and profits single contract is the cost

unit. Working place is contract site not the factory generally.

For completing the contract some parts of the work or

job may be assigned to specialist known as sub

contractor.

If contractor fails to complete the work in time penalties

may be imposed by the contractee for delay.


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Plant may be purchased or hired especially for thecontract

Employed by undertakings engaged in building,

road & bridge construction, ship building, etc.

Work carried out at site and not in factory

premises

Payments made based on stages of completion and

depends on Architects Certificate

May contain Escalation Clause and Penalty Clause


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Concepts relating to Contract Accounts:Contractor:

Contractee:

Contract Price:

Work certified:

Part of the total contract price which is has been

completed and approved by the architect

Value for which the contract is undertaken

Person on whose behalf the task is being done

Person who undertakes the task of doing the job


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Material

1. Material unutilized carried forward.2. Transfer of material from one contract toanother.

3. Profit & loss on sell of material transferred toP&L account.

Debit Credit

1. Material required 1. Material returned

2. Sale of material

3. Unutilized Material

4. Material stolen or

destroyed


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Wages

1. Directly allocated to the contract.

2. Contract account Debit - Accrued &

outstanding wages.

Expenses

1. Other than material & wages.2. E.g. architects/consultants fees,

electricity, insurance.


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Concepts relating.

Uncertified Work:

Cash Paid:

Retention Money:

Part of the work certified that is held back by theContractee

Part of the work certified that is paid by the Contractee

Part of the task done but not approved by the

architect of the Contractee


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Notional Profit:Difference between the value of work certified anduncertified less the cost of work done to date

Estimated Profit:

Contract PriceLess Total cost already incurred

Excess of the contract price over the estimated total

cost of the contract

Less Estimated additional cost required to complete

the contract

Value of work certifiedAdd Value of work not yet certified

Less Cost of work to date


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Profit on Incomplete Contracts:

No profit or Loss be accounted for

Notional Profit X 1/3 X Cash received--------------------

Work Certified

(b) When work certified is 25 % or more but less than50%

(a) When work certified is less than 25% complete


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Profit on Incomplete Contracts:

Notional Profit X 2/3 X Cash received--------------------

Work Certified

(d) When the contractor estimates the profit:

(c) When work certified is the 50% or more but less

than 90%

Estimated Profit X Work Certified---------------------

Contract Price

contract costing.ppt

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