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Simply to show more quickly the relation of certain entries, it was assumed in the preparation of the above figures that "Cost of Construction" consisted entirely of "Bills Received from Creditors." Workmen's payrolls are paid in cash weekly. In only rare instances would a payroll appear as unpaid on a trial balance. The amount owing to both classes of creditors on each job is obtained by analyzing unpaid balances shown on trial balances.

STATEMENT A-(Form 24).

Preparation of Statement

The Hudson operation will be taken for illustrative purposes. The "Contract and Extras" figure, $1,000,000, and the "Original Estimated Profit" of $150,000 are taken from the memorandum account with the owner (Form 22, page 161). The $600,000 "Applications to Owners," and the $477,000 collected appear in the regular account with the owner (Form 22). The "Construction Cost" of $510,500 is taken from the Hudson Construction account on the general ledger. The cost of $510,500 includes both paid and unpaid obligations.

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Form 24. Statement of Uncompleted Contracts (Statement A)

*Loss (indicated in red).

"Retention by Owners" is calculated at 10% for illustration only. "L. S." means "lump-sum contract."

The Accounts Payable table above shows unpaid Hudson accounts aggregating $60, 100, which amount is deducted from "Construction Cost" to arrive at the amount of disbursements made, $450,400. The "Retention by Owner" is the sum his contract permits him to retain until completion of the job, that is, for illustration, 10% of the application for $600,000. The "Reserve for Subcontractors" is the retention which the contractor can withhold from subcontractors.

The Hudson is a lump-sum contract (marked "L. S." in the second column) with all construction gains reverting to the contractor and all construction losses being absorbed by him. His "Original Estimated Profit" was $150,000. The cost

report, as indicated above, shows a construction gain of $25,000, making his "Present Estimated Profit" on the entire job $175,000. The "Applications to the Owner" shows that 60% of the work has been completed. The approximate proportion of the final profit, which apparently has been earned, is 60% of the $175,000, or $105,000.

Emphasis is placed on the fact that this statement is simply a memorandum statement prepared monthly for general information. The figures shown as "Proportionate Profit to Date" are not entered on the books as earned profit. The relation of the figures shown on this statement to those used for profit and loss entries is explained in connection with the preparation of the profit and loss statement in Chapter XV.

The remaining figures in the "Contract and Extras," the "Original Estimated Profit," the "Applications to Owners," and the "Amount Collected" columns are taken from the memorandum and the regular accounts with the owners of each of the four operations, in the same manner as explained for the Hudson entries.

The Jones' contract is a cost-plus contract with a guaranteed maximum price. It provides for a fixed fee of $50,000 to the contractor, and that all savings are to revert to the owner. The estimated cost is the $500,000 difference between the "Contract and Extras," $550,000, and the "Original Estimated Profit" of $50,000. The cost reports on the Jones showed that the actual cost would be $30,000 less than the estimated cost. As the contractor's fee is limited to $50,000, his final bill to the owner would be $470,000 cost, plus $50,000 fee, or total of $520,000, making a saving of $30,000, which reverts to the owner. The work completed is valued at $390,000, or 75% of the final cost to the owner. This percentage of the "Present Estimated Profit" is considered as the "Proportionate Profit to Date."

The Williams' contract was taken as a cost-plus contract, with a guaranteed maximum price. The contractor is to receive a fee of 10% on the actual cost, and, in addition, is to share equally with the owner in any savings effected. The "Contract and Extras" are $275,000, the "Original Estimated Profit" $25,000, making the "Original Estimated Cost" $250,000. The cost reports show a construction gain of $20,000. The actual cost of construction is, therefore, $230,000, on which the contractor is entitled to a fee of 10%, or $23,000, making his bill for cost and fee $253,000. The guaranteed maximum price was $275,000, making the savings $22,000. The owner receives $11,000 and the contractor an equal amount. owner pays $264,000 for the work, consisting of the actual cost of construction, $230,000; the contractor's fee of 10%, $23,000, and the contractor's participation in the saving, $11,000. The "Application to the Owners," $237,600, is 90% of the final cost, $264,000. This percentage of the "Present Estimated Profit" equals $30,600.

The

The Hudnut is a lump-sum contract on which the cost of construction is $10,000 more than was estimated. This loss reduces the contractor's estimated profit from $35,000 to $25,000. As three-quarters of the work is completed, his "Proportionate Profit to Date" is $18,500.

The Ford contract is also a cost-plus contract with a guaranteed maximum price and provides for an 8% fee to the contractor, with 25% interest in the savings. The "Contract and Extras" were $432,000 and the "Original Estimated Profit" $32,000, making the "Original Estimated Cost" $400,000. The cost reports show a construction loss of $35,000. The actual cost of performing the work is, therefore, $435,000. As the contractor guaranteed the cost at $432,000, he sustains a cash loss of $3,000. The contract is approximately 90% completed, so that the proportion of loss to date is $2,700.

Relation of Columns

The difference between "Contract and Extras," $2,757,000, and "Original Estimated Profit," $292,000, is the "Contractor's Original Estimated Cost," $2,465,000.

The difference between "Contract and Extras," $2,757,000, and "Savings Reverting to the Owner," $41,000, equals the "Ultimate Cost to Owners," $2,716,000.

The difference between this ultimate cost, $2,716,000, and the "Present Estimated Profit" of $281,000 is the contractor's present apparent cost, $2,435,000. This indicates apparently a reduction of $30,000 in present cost compared with original estimated cost. Due to the nature of the contracts, however, the owners receive $41,000 in savings, while the contractor's profit is reduced $11,000.

The difference between the ultimate cost to owners of $2,716,000 and the applications, $1,991,600, represents the $724,400 uncompleted work on hand. The profit on this uncompleted work is the difference, $91,850, between the present estimated profit on all work of $281,000 and the $189,150 proportionate profit on work completed. The excess of the "Applications to Owners," $1,991,600 over “Construction Cost," $1,799,700, is the $191,900 total of the credit balances of all construction accounts. The difference between "Construction Costs," $1,799,700, and the "Amount Paid Out," $1,643,000, is the $156,700 owing to creditors and subcontractors. The $350,000 shown on trial balance as due from owners is the difference between applications, $1,991,600 and collections of $1,641,600. Of this amount, $199,160 is the total sum that owners are permitted to retain until completion of the work, leaving $150,840 as the amount collectible during November, the month following the date of the statement.

Of the $156,700 owing by the contractor, $26,600 can be retained, leaving the amount he will have to pay during November $130,100. The excess of his disbursements over his

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