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LEARNING OBJECTIVES, Understanding concept of contract costing, Treatment of work certified, uncertified, Treatment of profit on incomplete contracts and work in progress

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Topic synopsis, Contract meaning, Various terms related to contract and contract costing, Profit on incomplete contracts, Contract account, Contractee’s account, This Photo by Unknown Author is licensed under CC BY-SA

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What is a contract?, The contract itself is a cost center and is executed under the customer’s specifications. , Each contract, short term, or long term, is treated as a job., It is understood from common sense that construction work involves massive investment and labor employment. , The work being of a constructional nature, the same is executed at the customer’s site, as per his specifications., This Photo by Unknown Author is licensed under CC BY-SA

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What is contract costing?, Contract Costing is a special type of job costing, where the unit of cost is a single contract. , Contract costing is a variant of job costing system applicable, particularly in case of the organization’s doing construction work. , It is also known as terminal costing., This Photo by Unknown Author is licensed under CC BY-SA

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Features of Contract Costing, A cost unit is a specific contract. , Each contract takes a long time to complete usually more than a year., A separate ledger A/c is opened for each contract., Most of the Expenses are directly allocated to the contract. Common Expenses are apportioned to all contracts on suitable basis., Most of materials are purchased for the specific contract, hence it is charged to contract., This Photo by Unknown Author is licensed under CC BY-SA

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Features of Contract Costing, Normally entire labour is directly charged to the contract., Most of the Expenses like electricity, telephone, Insurance are direct Expenses , Sub contractors may be employed for electric fittings, welding works, glass work or plumbing works, etc., Plant and equipment may be purchased or hired for the contract. , Penalties may be incurred for failure to complete the contract work within agreed time limit., Profit on incomplete contract should be calculated., This Photo by Unknown Author is licensed under CC BY-SA

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To be continued