Piccolo Construction Signed a Contract to Build a Warehouse for a Customer

Essay

Piccolo Construction signed a contract to build a warehouse for a customer. Construction covers a four-year period. The following data pertain to the contract and subsequent construction: Contract price: $1,750,000 Estimated costs: 1,500,000 Actual results $$\begin{array} { | l | r | r | } \hline \text { Year } & \text { Costs } & \text { Collections } \\ \hline1 & \$ 750,000 & \$ 205,000 \\\hline 2 & \$ 450,000 & \$ 537,000 \\\hline 3 & \$ 225,000 & \$ 600,000 \\\hline 4 & \$ 75,000 & \$ 408,000 \\\hline\end{array}$$ Required: Calculate the revenue, expense, and profit for each of the four years assuming the following independent situations: The estimated costs to complete are well established and no unknown issues exist with respect to the project. However, the customer has just been released from bankruptcy and this is the first contract with Piccolo Construction has obtained from them. Piccolo has previously built two warehouses for this customer and has never had any problems with cost overruns or cash collections. No problems with cash collections are anticipated however the project costs are uncertain due to environmental issues which may arise.