Answer: -$30,000
Explanation:
Gross profit for the year is calculated by multiplying the expected profit to be made by the cost - to -cost ratio and then subtracting the gross profit expected in the previous year.
Cost to cost ratio = Costs incurred till date / Costs to be incurred in total
<h2>
Year 1</h2>
Cost to cost ratio = 200,000 / ( Costs incurred + Cost to complete)
= 200,000 / (200,000 + 200,000)
= 50%
Gross profit = 50% * ( Price - estimated cost to complete)
= 50% ( 600,000 - 400,000)
= $100,000
<h2>
Year 2 </h2>
Cost to cost ratio = 350,000 / ( Costs incurred + Cost to complete)
= 350,000 / (350,000 + 150,000)
= 350,000 / 500,000
= 70%
Gross profit = 70% * ( Price - estimated cost to complete) - Previous Gross
= 70% ( 500,000 - 400,000) - 100,000
= -$30,000
<h2><u>
Gross Loss</u>
of $30,000 in Year 2</h2><h2>
</h2>
<em>Note; Ignore the first comment</em>
