Define percentage complete and describe how it is calculated.

Define percentage complete and describe how it is calculated.

• A. The percentage of work completed to date relative to total contract work; calculated as costs incurred to date divided by total estimated costs, used to recognize revenue and gross profit.
• B. The ratio of earned value to the original budget at completion.
• C. The percentage of milestones achieved in time.
• D. The ratio of actual cash receipts to total contract value.

Answer: (A)

Percentage complete measures how much of a long-term contract has actually been finished and is used to recognize revenue and gross profit in proportion to progress. The standard way to calculate it is with the cost-to-cost method: costs incurred to date divided by total estimated costs to complete the contract. This yields the fraction of the contract that’s complete. For example, if you’ve spent $4 million so far and expect the total cost to be $8 million, the percentage complete is 50%, so you’d recognize about 50% of the contract revenue and gross profit to date, with adjustments if cost estimates change. The other choices describe different concepts—earned value relative to budget, schedule milestones, or cash receipts relative to contract value—which are not how percentage complete is defined or used.

Percentage complete measures how much of a long-term contract has actually been finished and is used to recognize revenue and gross profit in proportion to progress. The standard way to calculate it is with the cost-to-cost method: costs incurred to date divided by total estimated costs to complete the contract. This yields the fraction of the contract that’s complete. For example, if you’ve spent $4 million so far and expect the total cost to be $8 million, the percentage complete is 50%, so you’d recognize about 50% of the contract revenue and gross profit to date, with adjustments if cost estimates change. The other choices describe different concepts—earned value relative to budget, schedule milestones, or cash receipts relative to contract value—which are not how percentage complete is defined or used.