How does a firm estimate the degree completed under the$$percentage$-$of$-$completion approach?

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Part $1$

A$.$

Estimating the degree of completion is a significant issue in implementing the$$percentage$-$of$-$completion method. The only way to estimate the degree of completion is by using input measure. A common method used in practice is the$$cost$-$to$-$cost approach, an input measure based on costs incurred. Under the$$cost$-$to$-$cost approach, the firm estimates the cumulative percentage of completion by dividing the total cost incurred to date by total estimated costs.

B$.$

Estimating the degree of completion is a significant issue in implementing the$$percentage$-$of$-$completion method. We can estimate the degree of completion by multiplying the total estimated contract revenue times the percentage complete. Revenue for the current period is cumulative revenue less revenue recognized in all prior periods.

C$.$

Estimating the degree of completion is a significant issue in implementing the$$percentage$-$of$-$completion method. We can estimate the degree of completion by computing gross profit for the year as the revenue recognized in the current period less the costs recognized in the prior periods.

D$.$

Estimating the degree of completion is a significant issue in implementing the$$percentage$-$of$-$completion method. We can estimate the degree of completion by using input$$measures$,$ output$$measures$,$ or engineering estimates. A common method used in practice is the$$cost$-$to$-$cost approach, an input measure based on costs incurred. Under the$$cost$-$to$-$cost approach, the firm estimates the cumulative percentage of completion by dividing the total cost incurred to date by total estimated costs.