Accounting · Contract Costing
In Contract Costing, what is the primary purpose of calculating Notional Profit and how does it specifically differ from Estimated Profit?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Notional Profit is the profit realized on the portion of work certified by the architect, while Estimated Profit is the profit realized on work not yet certified.
- 2Notional Profit is used only when the contract is less than 25 percent complete, whereas Estimated Profit is used when completion is over 75 percent.
- 3Notional Profit is the profit on uncompleted contracts calculated based on the difference between the value of work certified and the cost of work certified, whereas Estimated Profit is the total expected profit on the entire contract calculated upon completion.✓
- 4Notional Profit is used for cost control during execution, while Estimated Profit is calculated at the beginning of the contract to determine the final sale price.
Correct answer
Notional Profit is the profit on uncompleted contracts calculated based on the difference between the value of work certified and the cost of work certified, whereas Estimated Profit is the total expected profit on the entire contract calculated upon completion.
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