In the cost-to-cost method of percentage of completion, which item should be excluded from the calculation?

In the cost-to-cost method of percentage of completion, which item should be excluded from the calculation?

• A. Stored materials and uninstalled materials
• B. Labor costs
• C. Overhead
• D. Equipment depreciation

Answer: (A)

In the cost-to-cost method, the percentage of completion is calculated by dividing costs incurred to date by the total estimated costs to complete the contract. Only costs that reflect work actually performed on the project should be included in the numerator. Labor costs, overhead allocations, and equipment depreciation are costs incurred in moving toward completion, so they belong in the calculation. Stored materials and materials that have been purchased but not yet installed are still inventory and have not contributed to work performed; including them would overstate progress and distort revenue recognition. Therefore, stored materials and uninstalled materials are excluded from the calculation.

In the cost-to-cost method, the percentage of completion is calculated by dividing costs incurred to date by the total estimated costs to complete the contract. Only costs that reflect work actually performed on the project should be included in the numerator. Labor costs, overhead allocations, and equipment depreciation are costs incurred in moving toward completion, so they belong in the calculation. Stored materials and materials that have been purchased but not yet installed are still inventory and have not contributed to work performed; including them would overstate progress and distort revenue recognition. Therefore, stored materials and uninstalled materials are excluded from the calculation.