Chapter 4: More Construction Accounting
Learning Objectives
At the completion of this chapter the student should be able to:
• Explain what a committed cost is and how committed costs are used to improve cost
tracking.
• Estimated to the cost at completion for a construction project.
Instructional Hints
• Emphasize that a construction manager should begin tracking committed costs as soon as
they begin writing contracts and issuing the major purchase orders.
Activities
• Assign each student a different accounting package. Using the internet, have them identify
the key features of their assigned software package. Compare the software packages in
class and discuss which packages are most suited to construction companies.
Instruction Resources
• The figures from this chapter in electronic format and PowerPoint slides can be found at
the instructor’s website.
Solutions to the Textbook Problems
1. Committed costs are those costs the company has committed to pay and can quantity the cost.
2. Although the labor rate per hour may be fixed, the number of labor hours require is seldom
3. Underbillings (costs and profits in excess of billings) are where the contractor has under
4. Overbillings (billings in excess of cost and profits) are where the contractor has overbilled
the owner or has billed the owner for more than the costs and estimated profits incurred. It is
6. There are six key principals. (1) Separation of duties require two or more employees to work
7. Reliability, cost, training and support, ease of use, system protection, integration of modules,
8. The sanitary sewer numbers are as follows:
Original Estimate = $25,000
Committed Costs Invoiced = $0
The Non-committed Costs Invoiced = $31,300
The outside lighting numbers are as follows:
Original Estimate = $23,600
Original Estimate = $25,000 + $31,000 + $17,000 + $23,600 = $96,600
Change Orders = $3,200 + $0 + $0 + $0 = $3,200
The concrete materials numbers are as follows:
Original Estimate = $9,900
Change Orders = $0
The landscaping numbers are as follows:
Original Estimate = $37,500
Change Orders = $0
The totals are as follows:
Original Estimate = $30,000 + $17,500 + $19,200 + $9,900 + $37,500 = $114,100
See Problem 04-16.xlsx for the following spreadsheet solution:
Total Total
Committed Estimated
Non– and Non– Estimated Cost Variance
Total Committed Committed Committed Cost at Over /
Original Change Estimate Committed Costs Costs Costs To Completion (Under)
Code Description Estimate Orders (C + D) Costs Invoiced Invoiced (F + H) Complete (I + J) (K – E)
2050 Demolition & Grubbing 30,000 5,000 35,000 – – 33,562 33,562 – 33,562 (1,438)
2100 Grading & Excavation 17,500 2,000 19,500 – – 17,264 17,264 2,236 19,500 –
2610 Site Conc.-Labor 19,200 – 19,200 19,200 15,200 – 19,200 – 19,200 –
2620 Site Conc.-Concrete 9,900 – 9,900 – – 7,425 7,425 1,950 9,375 (525)
2700 Landscaping 37,500 – 37,500 37,500 – – 37,500 – 37,500 –
10. Reduce the cost of the concrete by 4%. The project is under budget by $5,825. See Problem
04-16.xlsx for the following spreadsheet solution:
Total Total
Committed Estimated
Non- and Non– Estimated Cost Variance
Total Committed Committed Committed Cost at Over /
Original Change Estimate Committed Costs Costs Costs To Completion (Under)
Code Description Estimate Orders (C + D) Costs Invoiced Invoiced (F + H) Complete (I + J) (K – E)
1100 Supervision 36,000 – 36,000 – – – – 36,000 36,000 –
1700 Temporary Utilities 6,700 – 6,700 – – – – 6,700 6,700 –
1900 Clean-up 4,600 – 4,600 – – – – 4,600 4,600 –
3300 Footing and Foundation—Labor 3,400 – 3,400 – – – – 3,400 3,400 –
3400 Footing and Foundation—Concret e 3,500 – 3,500 – – – – 3,360 3,360 (140)
3450 Concrete Pump 1,700 – 1,700 – – – – 1,700 1,700 –
3500 Slab/Floor—Labor 2,100 – 2,100 – – – – 2,100 2,100 –
3600 Slab/Floor—Concrete 6,800 – 6,800 – – – – 6,528 6,528 (272)
3900 Rebar 1,100 – 1,100 – – – – 1,100 1,100 –
4100 Masonry 44,000 – 44,000 42,136 – – 42,136 – 42,136 (1,864)
5100 Structural Steel 11,000 – 11,000 10,250 – – 10,250 – 10,250 (750)
5300 Joist and Deck 15,500 – 15,500 15,500 – – 15,500 – 15,500 –
5900 Erection 8,600 – 8,600 8,200 – – 8,200 – 8,200 (400)
6110 Rough Carpentry 500 – 500 – – – 500 500 –
6120 Lumber 900 – 900 875 – – 875 – 875 (25)
7200 Insulation 1,700 – 1,700 1,802 – – 1,802 – 1,802 102
7500 Roofing 9,000 – 9,000 8,875 – – 8,875 – 8,875 (125)
7700 Roof Specialties 1,000 – 1,000 945 – – 945 – 945 (55)
8110 Metal Doors and Frames 2,900 – 2,900 2,725 – – 2,725 – 2,725 (175)
8400 Store Fronts 9,500 – 9,500 9,100 – – 9,100 – 9,100 (400)
8700 Hardware 1,900 – 1,900 1,864 – – 1,864 – 1,864 (36)
9100 Drywall 6,700 – 6,700 6,898 – – 6,898 – 6,898 198
9200 Ceramic Tile 2,100 – 2,100 1,999 – – 1,999 – 1,999 (101)
9300 Acoustical Treatment 7,200 – 7,200 6,995 – – 6,995 – 6,995 (205)
9400 Carpet and Vinyl 5,500 – 5,500 5,354 – – 5,354 – 5,354 (146)
9800 Paint 8,200 – 8,200 8,000 – – 8,000 – 8,000 (200)
10400 Signage 500 – 500 486 – – 486 – 486 (14)
10800 Toilet & Bath Accessories 1,000 – 1,000 965 – – 965 – 965 (35)
12300 Cabinetry and Countertops 10,000 – 10,000 9,865 – – 9,865 – 9,865 (135)
21100 Fire Sprinklers 6,700 – 6,700 7,000 – – 7,000 – 7,000 300
22100 Plumbing 24,000 – 24,000 22,115 – – 22,115 – 22,115 (1,885)
23100 HVAC 23,000 – 23,000 23,850 – – 23,850 – 23,850 850
26100 Electrical 19,000 – 19,000 17,825 – – 17,825 – 17,825 (1,175)
31100 Grading and Excavation 6,300 – 6,300 6,150 – – 6,150 – 6,150 (150)
32100 Asphalt 17,000 – 17,000 17,569 – – 17,569 – 17,569 569
32200 Site Concrete—Labor 1,000 – 1,000 – – – – 1,000 1,000 –
32300 Site Concrete—Concrete 1,000 – 1,000 – – – – 960 960 (40)
32500 Landscaping 1,000 – 1,000 – – – – 1,000 1,000 –
33100 Sanitary Sewer 1,000 – 1,000 1,359 – – 1,359 – 1,359 359
33200 Water Line 1,000 – 1,000 1,125 – – 1,125 – 1,125 125
11. The project is under budget by $5,477. See Problem 04-16.xlsx for the following spreadsheet
solution:
Total Total
Committed Estimated
Non- and Non– Estimated Cost Variance
Total Committed Committed Committed Cost at Over /
Original Change Estimate Committed Costs Costs Costs To Completion (Under)
Code Description Estimate Orders (C + D) Costs Invoiced Invoiced (F + H) Complete (I + J) (K – E)
1100 Supervision 36,000 – 36,000 – – 7,985 7,985 28,000 35,985 (15)
1700 Temporary Utilities 6,700 – 6,700 – – 1,615 1,615 5,211 6,826 126
1900 Clean-up 4,600 – 4,600 – – – – 4,600 4,600 –
3300 Footing and Foundation—Labor 3,400 – 3,400 – – 3,685 3,685 – 3,685 285
3400 Footing and Foundation—Concrete 3,500 – 3,500 – – 3,321 3,321 – 3,321 (179)
3450 Concrete Pump 1,700 – 1,700 – – 1,569 1,569 – 1,569 (131)
3500 Slab/Floor—Labor 2,100 – 2,100 – – 1,896 1,896 – 1,896 (204)
3600 Slab/Floor—Concrete 6,800 – 6,800 – – 6,955 6,955 – 6,955 155
3900 Rebar 1,100 – 1,100 – – 999 999 – 999 (101)
4100 Masonry 44,000 – 44,000 42,136 36,000 – 42,136 – 42,136 (1,864)
5100 Structural Steel 11,000 – 11,000 10,250 – – 10,250 – 10,250 (750)
5300 Joist and Deck 15,500 – 15,500 15,500 – – 15,500 – 15,500 –
5900 Erection 8,600 – 8,600 8,200 – – 8,200 – 8,200 (400)
6110 Rough Carpentry 500 – 500 – – – – 500 500 –
6120 Lumber 900 – 900 875 – – 875 – 875 (25)
7200 Insulation 1,700 – 1,700 1,802 – – 1,802 – 1,802 102
7500 Roofing 9,000 – 9,000 8,875 – – 8,875 – 8,875 (125)
7700 Roof Specialties 1,000 – 1,000 945 – – 945 – 945 (55)
8110 Metal Doors and Frames 2,900 – 2,900 2,725 – – 2,725 – 2,725 (175)
8400 Store Fronts 9,500 – 9,500 9,100 – – 9,100 – 9,100 (400)
8700 Hardware 1,900 – 1,900 1,864 – – 1,864 – 1,864 (36)
9100 Drywall 6,700 – 6,700 6,898 – – 6,898 – 6,898 198
9200 Ceramic Tile 2,100 – 2,100 1,999 – – 1,999 – 1,999 (101)
9300 Acoustical Treatment 7,200 – 7,200 6,995 – – 6,995 – 6,995 (205)
9400 Carpet and Vinyl 5,500 – 5,500 5,354 – – 5,354 – 5,354 (146)
9800 Paint 8,200 – 8,200 8,000 – – 8,000 – 8,000 (200)
10400 Signage 500 – 500 486 – – 486 – 486 (14)
10800 Toilet & Bath Accessories 1,000 – 1,000 965 – – 965 – 965 (35)
12300 Cabinetry and Countertops 10,000 – 10,000 9,865 – – 9,865 – 9,865 (135)
21100 Fire Sprinklers 6,700 – 6,700 7,000 – – 7,000 – 7,000 300
22100 Plumbing 24,000 – 24,000 22,115 – – 22,115 – 22,115 (1,885)
23100 HVAC 23,000 – 23,000 23,850 – – 23,850 – 23,850 850
26100 Electrical 19,000 – 19,000 17,825 – – 17,825 – 17,825 (1,175)
31100 Grading and Excavation 6,300 – 6,300 6,150 3,150 – 6,150 – 6,150 (150)
32100 Asphalt 17,000 – 17,000 17,569 – – 17,569 – 17,569 569
32200 Site Concrete—Labor 1,000 – 1,000 – – – – 1,000 1,000 –
32300 Site Concrete—Concret e 1,000 – 1,000 – – – – 960 960 (40)
32500 Landscaping 1,000 – 1,000 – – – – 1,000 1,000 –
33100 Sanitary Sewer 1,000 – 1,000 1,359 – – 1,359 – 1,359 359
33200 Water Line 1,000 – 1,000 1,125 – – 1,125 – 1,125 125
Profit and Overhead 32,000 – 32,000 32,000 – – 32,000 – 32,000 –
Earned Profit = $31,616($202,138)/$225,236 = $28,374
Estimated Profit = $350,199 – $310,564 = $39,635
The numbers for Job 320 are as follows:
Estimated Profit = $55,123 – $45,224 = $9,899
Earned Profit = $9,899($5,211)/$45,224 = $1,141
See Problem 04-17.xlsx for the following spreadsheet solution:
Costs & Billings in
Total Actual Costs & Profits in Excess of
Current Estimated Estimated Costs Earned Earned Excess of Costs & Percent
Job Contract Cost at Profit To Profit Profit Total Billings Profits Complete
# Job Name Amount Completion (C – D) Date (E x F / D) (F + G) Billed (H – I) (I – H) (F x 100 / D)
318 Mountain Peak Office Remodel 256,852 225,236 31,616 202,138 28,374 230,512 252,253 – 21,741 90
319 East Street Restaurant 350,199 310,564 39,635 152,364 19,445 171,809 178,256 – 6,447 49
320 Market Street Warehouse 55,123 45,224 9,899 5,211 1,141 6,352 5,500 852 – 12
– – – – – –
581,024 359,713 852 28,188
13. The numbers for Job 311 are as follows:
Estimated Profit = $22,530 – $17,264 = $5,266
Earned Profit = $5,266($16,538)/$17,264 = $5,045
The numbers for Job 318 are as follows:
Estimated Profit = $17,954 – $14,567 = $3,387
Earned Profit = $3,387($4,562)/$14,567 = $1,061
See Problem 04-17.xlsx for the following spreadsheet solution:
Costs & Billings in
Total Actual Costs & Profits in Excess of
Current Estimated Estimated Costs Earned Earned Excess of Costs & Percent
Job Contract Cost at Profit To Profit Profit Total Billings Profits Complete
# Job Name Amount Completion (C – D) Date (E x F / D) (F + G) Billed (H – I) (I – H) (F x 100 / D)
311 Smith Remodel 22,530 17,264 5,266 16,538 5,045 21,583 21,000 583 – 96
316 Redd Remodel 35,624 28,221 7,403 22,345 5,862 28,207 28,500 – 293 79
318 Winter Remodel 17,954 14,567 3,387 4,562 1,061 5,623 6,000 – 377 31
322 Richardson Remodel 5,213 3,721 1,492 1,956 784 2,740 – 2,740 – 53
63,773 45,401 3,323 671
14. From Problem 12, the costs and profits in excess of billings is $852 and the billings in excess
of costs and profits is $28,188. The costs and profits in excess of billings must be decreased
by $4,864 ($852 – $5,716) and the billings in excess of costs and profits must be increased
by $10,953 ($28,188 – $17,235). The accounting transactions are as follows:
BALANCE SHEET
ASSETS LIABILITIES
140 Cost and Profits
in Excess of
(4,864.00)
INCOME STATEMENT
EXPENSES REVENUES
430 Current Period
Net Income
(15,817.00)
(4,864.00)
PROFIT
=
(15,817.00)
(15,817.00)
=(15,817.00)=(4,864.00) (15,817.00)
500 Revenue
EQUITY
of Billings
320 Billings in
Excess of Costs
10,953.00
and Profits
15. From Problem 13, the costs and profits in excess of billings is $3,323 and the billings in
excess of costs and profits is $670. The costs and profits in excess of billings must be
increased by $1,761 ($3,323 – $1,562) and the billings in excess of costs and profits must be
decreased by $1,455 ($670 – $2,125). The accounting transactions are as follows:
BALANCE SHEET
ASSETS LIABILITIES
140 Cost and Profits
in Excess of
1,761
INCOME STATEMENT
EXPENSES REVENUES
430 Current Period
Net Income3,216
1,761
PROFIT
=
3,216
3,216
=3,216 =1,761 3,216
500 Revenue
EQUITY
of Billings
320 Billings in
Excess of Costs
(1,455)
and Profits