Question

Question 1: What is a joint venture and why might two construction firms choose to form one? (4 points) Case Study 1: Please answer the first 4 questions with the following case data for Project 101 and Project 102. A construction company began operations on January 2, 2010. During the year the company was awarded three construction contracts. The company incurred $300,000 operating expenses for the year for which $275,000 has been paid while the balance is owed as of December 31, 2010. Project data is summarized for each of the three projects in the following paragraphs. Project 101: Low-Rise Office Building The initial contract was signed on January 5, 2010 in the amount of $1,000,000. This amount included $800,000 for construction costs, $150,000 for overhead mark-up, and $50,000 for profit markup. The contractor broke ground on February 4, 2010. During the course of construction the client decided to upgrade the quality of the lighting and plumbing fixtures, resulting in a change order issued to the contractor in the amount of $100,000 on October 7, 2010. The change order price was calculated by the contractor as follows: $50,000 construction costs, $37,500 overhead markup. $12,500 profit markup. At the end of 2010, construction was not complete. However, the client was renting out office space to other entities as well as using some of the offices for the client's own business entity. Work remaining as of December 31, 2010 included surfacing the parking lot, erecting a portable parking attendant's station, miscellaneous site concrete work and landscaping. This work was schedule to be completed by May 1, 2010, weather permitting. A summary of accounting data as of December 31, 2010 included total construction costs in the amount of $800,000 for which $600,000 was paid. The balance reflected unpaid bills for the month of December, and retention withheld on subcontracts throughout the course of the project. The total progress billing as of December 31, 2010 was $1,000,000 of which $900,000 was collected with the balance outstanding as retention receivable. The project manager estimated that given the work left to be completed, approximately $200,000 of construction cost would be incurred. Project 102: Retaining Wall The initial contract was signed on October 17, 2010 in the amount of $100,000. The contract called for 1000 linear feet of 8 foot high retaining wall to be erected in a residential subdivision.

Answer 1

	Project 101				Project 102
	Original contract				linear size	1000
	construction cost	$800,000			Height	8
	Overhead mark-up	$150,000
	Profit mark up	$50,000			Cost of concrete	$40,000
					cost of reinforcing	$10,000
	Change order				Cost of labor	$50,000
	Construction cost	$50,000			Total cost	$100,000
	Overhead mark-up	$37,500
	Profit mark up	$12,500			No. of labor hours per liner foot	2.5
					Total labor hours	2500
	Total construction cost	$850,000			Pending cost to be incurred	$30,000
	Total overhead markup	$187,500			Length constructed	700
	Total profit mark up	$62,500			Hours used	2150
	Total project revenue	$1,100,000
				Question 4	% of completion
Question 2	estimated Construction cost yet to be incurred	$200,000			Cost to cost	70%
	%age of work pending	23.5%			Work quantity	70%
	Therefore, percentage of work complated	76.5%			labor hours	86%
	Revenue	$841,176.47
	Profit	$47,794.12
					Cost to cost and work quantity produce same result. Work quantity should be used as reference as this gives the actual amount of work completed wrt the total scsope of work
Question 3	Billing done	$1,000,000
	Based on billing method the entire amount billed is considered as revenue. So the revenue is $1,000,000 which is higher than the revenue recognized as per percentage of completion method. Contractor has been doing advance billing to the client.