Bilma 005

Mahesh 013
Saurabh 029
Anant 040
Vaibhav 047
Shobhit 053
Rahul 055
Introduction
Contract is a legally binding agreement between two
or more parties.
It contains
- Final deliverables or work to be carried out
- Price of deliverables
- Period for completion
Ex - Home rent agreement
Employment bond
Contract Costing
Contract costing is used to find out the cost and
profit of each contract for a given period.
Contract costing applies where the work is
undertaken to customer’s special requirement which
lasts for longer duration
Contract costing enables the contractor to ascertain
and control the cost of each job or contract.
Ex :- construction of road, building, dams, bridges,
and other civil engineering works
Important Terms used in Contract
costing
Contractor – the person who undertakes the
contract
Contractee – the person for whom contract is
undertaken
Contract Price - is the amount agreed to be paid by
the contractee to the contractor as consideration for
the job done
Work Certified – Contractor receives amount
payment against the value of work completed at
specific interval. Certificate is given by architect
Important Terms used in Contract
costing
Retention Money –the amount retained by the
contractee so as to safeguard his interest incase of
future defects in work done
Cost Plus Contract: A cost plus contarct is contract
in which value of contract is determined by adding a
fixed margin of profit to the total cost of contract.
Features of contract costing
The end product
The period of the contract
The specification
The location of the work
The price
Completion by a stipulated date
The performance of the product
Elements of contract costing
 Materials
Debited – to contract account when required for a specific contract
Credited – when returned

 Wages
 allocated directly to the contract
 wages outstanding – Debit side

 Expenses
all the expenses other than materials and wages – charged in contract
eg: architect’s fee, electricity

 Plant & Machinery

 Purchased – exhausted / re-sale (credited)
 Hired (debited)
 Depreciated (debited)
Case
Contract ABC started on 1 July 2002. Costs , to 31
December 2002 when the company's accounting year
ends, are derived from the following information.
Case
As at 31 December, 2002, certificates had been issued
for work valued at 1,00,000 and the contractee had
made progress payments of 70,000. The company has
calculated that more work has been done since the
last certificates were issued, and that the cost of the
work done but not yet certified is 14,000. The final
contract price is 1,75,000 and the estimated total cost
of the contract is 1,30,000.
Solution
Solution
Cost of work certified = Cost of work to date – (cost of
work uncertified+ Material on hand)
CWC = 100000 – (14000 + 3000) = 83000
Solution
Estimated degree of completion
 

Therefore, profit to date:

sales basis = 45,000 * 57.14% = 25,714.29 
cost basis = 45,000 * 74.62% = 33,576.92
Reference
Lal, Jawahar and Srivastava, Seema (2009) Cost Accounting,
India: Tata McGraw- Hill
Williamson, Duncan(1996) Contract Costing Worked
Examples [Online] Available
at:<http://www.duncanwil.co.uk/contract.html > [Accessed
24th November, 2010]
Lakum, Ketan(2000) Contract- Costing [Online] Available
at:<http://www.scribd.com/doc/29496672/Contract-Costing>
[Accessed 24th November, 2010]