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What is the major drawback of the cost-to-cost method

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Simonson Construction Company won a contract to build a warehouse for Geller Company. The contract price was $12,800,000. Simonson estimated that the warehouse would take three years and cost $8,960,000 to complete. Actual and expected costs for the next three years were:

Year 1 - $4,838,400

Year 2 - $2,867,200 and

year 3 - $1,254,400.

Question 1: Determine how much a) revenue and b) gross profit Simonson should recognize each year using the cost-to-cost method.

Question 2: What is the major drawback of the cost-to-cost method?

Question 3: What would be Simonson's gross profit in years 1, 2 and 3 under the completed-contract method?

Reference no: EM132461984

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