REVENUE AND CONTRACT COSTS |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||
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| REVENUE AND CONTRACT COSTS | REVENUE AND CONTRACT COSTS The Company uses the percentage-of-completion accounting method for fabrication contracts. Revenue from fixed-price or unit rate contracts is recognized on the percentage-of-completion method, computed by the efforts-expended method using the percentage of labor hours incurred as compared to estimated total labor hours to complete each contract. This progress percentage is applied to our estimate of total anticipated gross profit for each contract to determine gross profit earned to date. Revenue
recognized in a period for a contract is the amount of gross profit recognized for that period plus labor costs and pass-through costs incurred on the contract during the period. We define pass-through costs as material, freight, equipment rental, and sub-contractor services that are included in the direct costs of revenue associated with projects. Consequently, pass-through costs are included in revenue but have no impact on the gross profit realized for that particular period. Our pass-through costs as a percentage of revenue for each period presented were as follows:
Contracts in progress at June 30, 2017, were $31.6 million with $28.1 million relating to two major customers. Advance billings on contracts at June 30, 2017, was $8.6 million and included advances of $7.8 million from three major customers. Accrued contract losses were $3.5 million and $387,000 as of June 30, 2017 and December 31, 2016 , respectively. Our accrued contract losses as of June 30, 2017, are a result of changes in estimates totaling $10.2 million identified during the three months ended June 30, 2017, due to cost overruns and re-work related to two vessels we are constructing for a major customer in our Shipyards division.
Revenue and gross profit on contracts can be significantly affected by change orders and claims that may not be resolved until the later stages of the contract or after the contract has been completed and delivery occurs. At June 30, 2017, we included no amounts in revenue related to change orders on projects which have been approved as to scope but not price. During the six months ended June 30, 2016, we recorded a loss of $488,000 for a single customer related to revenue on change orders recognized in prior periods that were not recovered in our final settlement with the customer.
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