Question

3. What's the Revenue (WTR) Company enters into a 6 month contract to provide consulting services related to a customer's computer system. The customer agrees to pay $200 per hour for the services up to a maximum of $200,000. In January and February WTR performs 120 and 200 hours of service, respectively, and believes it is highly unlikely that the overall contract work will exceed 1,000 hours. During March, WTR discovered a significant error in the customer's computer code related to the engagement, resulting in 350 hours of work during March. Based on this, WTR believes that the entire engagement will likely entail a total of 1,100 hours. a. b. C. How much revenue will be recognized in January on this consulting engagement? How much revenue will be recognized in February on this consulting engagement? How much revenue will be recognized in March on this consulting engagement?

Answer 1

Answer:

Given data:

• Rate per hour = $ 200
• Actual hrs In Jan = $ 120
• Actual hrs In Feb = $ 200
• Actual hrs In Mar = $ 350
• Total expected hours = 1,100 hrs
• Maximum payment receivable for = 1,000 hrs

Calculation of percentage of hrs for which payment receivable:

Particulars	Calculation	Percentage
Percentage of hrs for which payment receivable	= Maximum payment receivable for/Total expected hours = 1,000 hrs / 1,100 hrs = 0.9090*100[convert into percent] = 90.90%	90.90%

Calculation of revenue will be recognized in Jan ,Feb ,Mar on this consulting engagement:

Particulars	Jan	Feb	Mar
Actual hrs	$ 120	$ 200	$ 350
Hrs for which payment receivable (Actual hrs * hrs for which payment receivable)	=$120*90.90% = $ 109.08	=$200*90.90% = $ 181.8	=$350*90.90% =$ 318.15
Rate per hour	$ 200	$ 200	$ 200
Revenue to be recognized	=$109.08*$200 = $ 21,816	=$181.8*$200 = $ 36,360	=$318.15*$200 = $ 63,630

• Total revenue will be recognized =$ 21,816+$ 36,360+$ 63,630 = $ 1,21,806.