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Dear sir,
I am practicing a question but I am confused regarding one area and I need your assistance.
The question has mentioned various types of costs and one of them is “Overheads are apportioned at 40% of direct labour costs” This is the only detail in this question regarding overhead.
In the answer they have also included this cost in the overall profit calculation to check whether contract is profitable or loss making. However, as I know only overhead that increases or changes as a result of activity should be considered. There I don’t see any increase or change but just allocation. The question is about revenue over time recognition i.e., a contract to build a complex of luxury flats.
Is there mistake in text book?
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