XYZ Ltd Construction Project Progress Analysis
How can we calculate the percentage of completion for each year of the XYZ Ltd construction project?
Based on the given data, how do we determine the percentage of completion for the years ending on 30 June 2016, 2017, and 2018?
Calculation of Percentage of Completion for Each Year
To calculate the percentage of completion for each of the three years, we need to use the cost-to-cost method. This method calculates the percentage of work completed by dividing the actual construction costs incurred up to a certain date by the total estimated construction costs.
a) Percentage of completion for each of the three years:
- Year ending 30 June 2016: The actual construction costs incurred up to 30 June 2016 are $10,000,000, which is the estimated cost for this year. Therefore, the percentage of completion for this year is 25% ($10,000,000/$40,000,000).
- Year ending 30 June 2017: The actual construction costs incurred up to 30 June 2017 are $10,000,000 (for 2016) + $16,000,000 (for 2017) = $26,000,000, which is less than the estimated cost for this year of $21,000,000. Therefore, the percentage of completion for this year is 100% ($26,000,000/$26,000,000).
- Year ending 30 June 2018: The actual construction costs incurred up to 30 June 2018 are $10,000,000 (for 2016) + $16,000,000 (for 2017) + $6,000,000 (for 2018) = $32,000,000, which is less than the revised estimated cost for this year of $15,000,000. Therefore, the percentage of completion for this year is 100% ($32,000,000/$32,000,000).
So, the percentage of completion for each of the three years is:
- Year ending 30 June 2016: 25%
- Year ending 30 June 2017: 100%
- Year ending 30 June 2018: 100%
Understanding the Percentage of Completion Calculation
The calculation of the percentage of completion is crucial in monitoring the progress of a construction project. By utilizing the cost-to-cost method, project managers and stakeholders can assess the extent of work completed compared to the total estimated work.
In the case of the XYZ Ltd construction project, the percentage of completion for each year provides insights into the project's timeline and budget utilization. The calculations show that the project was on track in some years while facing cost challenges in others.
By accurately determining the percentage of completion, project managers can make informed decisions regarding resource allocation, scheduling adjustments, and overall project management strategies. This data-driven approach enhances project efficiency and ensures successful project delivery.