1. Determine the amounts of revenue, cost of sales, and gross profit that Amsterdam LLC recognizes in each year. Assume the firm uses the percentage-of-completion method and measures progress based on costs incurred.
2. Assume that the firm had estimated at the end of 2018 that 21,000 hours (instead of 18,000 hours) will be needed to complete the project. All other incurred and estimated hours remain the same as above. Explain how this change in estimate would affect (i) profit in 2018, and (ii) the total (aggregate) profit the firm recognizes over the contract period.
3. Calculate the Net Project Account balance at the end of each year.

 

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Amsterdam LLC is a management consulting firm with a reputation for expertise in the public sector. The firm has recently been awarded a government contract to implement a comprehensive reorganization of the public healthcare administration. The project involves three stages: in phase one, the strengths and weaknesses of the current system and the requirements for the new system are assessed and evaluated; in phase two, a detailed plan for a reorganization is devised based on the findings in phase one; in phase three, the plan is implemented. The contract specifies that Amsterdam LLC will be paid $4,000,000 upon completion of the first phase of the project, $5,000,000 upon completion of the second phase, and a final $7,000,000 upon conclusion of the third phase. Amsterdam LLC tracks its cost by the number of staff hours spent. The firm's accounting group has calculated the total cost per staff hour to be $400. Amsterdam LLC begins its work in 2017. At the end of the year, the firm has spent 6,000 staff hours on the project and estimates that additional 24,000 hours will be incurred until completion. In 2018, the firm delivers its phase- one completion report and receives the first installment payment. The number of staff hours incurred in 2018 is 8,000 and the firm estimates at the end of the year that another 18,000 hours will be required until completion. In 2019, the firm completes phase two and receives the agreed-upon payment. During the year, 10,000 staff hours are spent, and the firm anticipates that 6,000 more hours will be needed to complete the project. In 2020, Amsterdam LLC completes the final phase and receives the last installment payment. Another 7,000 staff hours are incurred in 2020. Amsterdam LLC is a management consulting firm with a reputation for expertise in the public sector. The firm has recently been awarded a government contract to implement a comprehensive reorganization of the public healthcare administration. The project involves three stages: in phase one, the strengths and weaknesses of the current system and the requirements for the new system are assessed and evaluated; in phase two, a detailed plan for a reorganization is devised based on the findings in phase one; in phase three, the plan is implemented. The contract specifies that Amsterdam LLC will be paid $4,000,000 upon completion of the first phase of the project, $5,000,000 upon completion of the second phase, and a final $7,000,000 upon conclusion of the third phase. Amsterdam LLC tracks its cost by the number of staff hours spent. The firm's accounting group has calculated the total cost per staff hour to be $400. Amsterdam LLC begins its work in 2017. At the end of the year, the firm has spent 6,000 staff hours on the project and estimates that additional 24,000 hours will be incurred until completion. In 2018, the firm delivers its phase- one completion report and receives the first installment payment. The number of staff hours incurred in 2018 is 8,000 and the firm estimates at the end of the year that another 18,000 hours will be required until completion. In 2019, the firm completes phase two and receives the agreed-upon payment. During the year, 10,000 staff hours are spent, and the firm anticipates that 6,000 more hours will be needed to complete the project. In 2020, Amsterdam LLC completes the final phase and receives the last installment payment. Another 7,000 staff hours are incurred in 2020.

Answer rating: 100% (QA)

Particulars Amount First phase if project 4000000 second phase of project 5000000 Third phase of pro... View the full answer