Contract costing
Contract costing is job costing scaled up for large, long-duration jobs such as construction projects, where each contract is its own cost unit and profit is recognised gradually as work is certified complete.
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A €500,000 contract with an estimated cost to complete of €440,000 has an estimated total profit of €60,000. By year-end, a surveyor certifies €300,000 of work, 60% of the contract price, so 60% of the €60,000 estimated profit, €36,000, is recognised, leaving €24,000 deferred to later years.
Where it fits
SubjectCost AccountingAdvancedTopicJob & Process CostingAdvanced
The formula
LaTeX
Variables
- Profit recognised to date (€)
- Estimated total profit on the contract (€)
- Value of work certified (€)
- Total contract price (€)
Recognises a share of the contract's estimated total profit in proportion to how much of the contract price has been certified as complete.