SOLUTION MANUAL
Construction Accounting and Financial Management, 4th Edition
By Steven J. Peterson
SC
O
R
EG
U
ID
ES
, TABLE OF CONTENT
PART I: INTRODUCTION TO CONSTRUCTION FINANCIAL MANAGEMENT
1. Construction Financial Management
PART II: ACCOUNTING FOR FINANCIAL RESOURCES
2. Construction Accounting Systems
3. Accounting Transactions
SC
4. More Construction Accounting
5. Depreciation
6. Analysis of Financial Statements
PART III: MANAGING COSTS AND PROFITS
7. Managing Costs
O
8. Determining Labor Burden
9. Managing General Overhead Costs
R
10. Setting Profit Margins for Bidding
11. Profit Center Analysis
EG
PART IV: MANAGING CASH FLOWS
12. Cash Flows for Construction Projects
13. Projecting Income Taxes
14. Cash Flows for Construction Companies
15. Time Value of Money
16. Financing a Company's Financial Needs
U
PART V: MAKING FINANCIAL DECISIONS
ID
17. Tools for Making Financial Decisions
18. Income Taxes and Financial Decisions
ES
, Chapter 1: Construction Financial Management
Learning Objectives
At the completion of this chapter the student should be able to:
• Explain why financial management is so important to a construction company.
SC
• Explain why financial management is different for construction companies than
formost other industries.
• Understand that all managerial employees from the owner to the crew
forepersonplay a role in financial management of a construction company.
O
Instructional Hints
• Compare a construction company to a manufacturing plant. Emphasize the
differences between a construction company and a manufacturing plant,
R
particularly: construction companies build unique products and the equipment
isnot usually stationary at single location. These are the reasons a construction
company needs a job cost system and an equipment cost system.
EG
Activities
• Invite a financial manager (for example, an accountant or general manager) from
aconstruction company to your class to discuss their role as a financial manager.
• Have each student interview a management employee for a construction
U
company.The interviews should include owners, project managers,
superintendents, and forepersons. Each student is to find out how the employee
contributes to the financial management of the company. Discuss their findings
ID
in class.
Instruction Resources
• The figures from this chapter in electronic format and PowerPoint slides can
ES
befound at the instructor’s website.
• Data on construction failures can be obtained from the Surety Information
Office(www.sio.org).
• Current data on construction company failures can be found at
http://www.census.gov/ces/dataproducts/bds/data_firm.html. The most useful
datacomes from reports that include the sector (e.g., Sector, Firm Age by Sector,
and Firm Size by Sector) because construction can be separated from other
industries.
, Solutions to the Textbook Problems
1. They are: 1) ineffective financial management systems, 2) bank line of credits
constantly borrowed to the limits, 3) poor estimating and/or job cost
reporting,
4) poor project management, and 5) no comprehensive business plan.
2. Anyone who controls financial resources (cash, materials, labor, and equipment)
SC
including: owners, general managers, project managers, estimators,
superintendents,and crew forepersons.
3. The way construction companies do business is very different than most companies.
The reasons for this include: 1) for many construction companies, their entire
productconsists of one of a kind construction projects; 2) their projects occurs at
different locations each time; 3) they receive progress payments from which
O
retention is withheld; and 4) they rely heavily on subcontractors to perform the
work.
4. Accounting for financial resources include: 1) tracking project and general overhead
R
costs, 2) ensuring that a proper construction accounting system has been set up and
isoperating properly, 3) tracking committed costs and projecting the project costs
at completion, 4) calculating under and over billings, 5) preparing financial
statements,and 6) managing the company’s finances so that the financial ratios are
EG
in line with the rest of the industry.
5. Managing costs and profits include: 1) controlling project costs, 2) monitoring and
projecting profitability, 3) setting and managing labor burden markups, 4)
managingoverhead, 5) setting profit margins, and 6) monitor the profitability of
individual customers.
6. Managing cash flows include: 1) matching the use of subcontractor and in-
U
house labor to available cash, 2) making sure that sufficient cash is available to
take on additional projects, 3) preparing income tax projections, 4) preparing
annual cashflow projections, and 5) arranging for financing.
7. Construction managers must select where to invest the company’s resources
ID
andselect the most economical construction equipment to use.
8. The answer to this question will vary from student to student.
ES
Construction Accounting and Financial Management, 4th Edition
By Steven J. Peterson
SC
O
R
EG
U
ID
ES
, TABLE OF CONTENT
PART I: INTRODUCTION TO CONSTRUCTION FINANCIAL MANAGEMENT
1. Construction Financial Management
PART II: ACCOUNTING FOR FINANCIAL RESOURCES
2. Construction Accounting Systems
3. Accounting Transactions
SC
4. More Construction Accounting
5. Depreciation
6. Analysis of Financial Statements
PART III: MANAGING COSTS AND PROFITS
7. Managing Costs
O
8. Determining Labor Burden
9. Managing General Overhead Costs
R
10. Setting Profit Margins for Bidding
11. Profit Center Analysis
EG
PART IV: MANAGING CASH FLOWS
12. Cash Flows for Construction Projects
13. Projecting Income Taxes
14. Cash Flows for Construction Companies
15. Time Value of Money
16. Financing a Company's Financial Needs
U
PART V: MAKING FINANCIAL DECISIONS
ID
17. Tools for Making Financial Decisions
18. Income Taxes and Financial Decisions
ES
, Chapter 1: Construction Financial Management
Learning Objectives
At the completion of this chapter the student should be able to:
• Explain why financial management is so important to a construction company.
SC
• Explain why financial management is different for construction companies than
formost other industries.
• Understand that all managerial employees from the owner to the crew
forepersonplay a role in financial management of a construction company.
O
Instructional Hints
• Compare a construction company to a manufacturing plant. Emphasize the
differences between a construction company and a manufacturing plant,
R
particularly: construction companies build unique products and the equipment
isnot usually stationary at single location. These are the reasons a construction
company needs a job cost system and an equipment cost system.
EG
Activities
• Invite a financial manager (for example, an accountant or general manager) from
aconstruction company to your class to discuss their role as a financial manager.
• Have each student interview a management employee for a construction
U
company.The interviews should include owners, project managers,
superintendents, and forepersons. Each student is to find out how the employee
contributes to the financial management of the company. Discuss their findings
ID
in class.
Instruction Resources
• The figures from this chapter in electronic format and PowerPoint slides can
ES
befound at the instructor’s website.
• Data on construction failures can be obtained from the Surety Information
Office(www.sio.org).
• Current data on construction company failures can be found at
http://www.census.gov/ces/dataproducts/bds/data_firm.html. The most useful
datacomes from reports that include the sector (e.g., Sector, Firm Age by Sector,
and Firm Size by Sector) because construction can be separated from other
industries.
, Solutions to the Textbook Problems
1. They are: 1) ineffective financial management systems, 2) bank line of credits
constantly borrowed to the limits, 3) poor estimating and/or job cost
reporting,
4) poor project management, and 5) no comprehensive business plan.
2. Anyone who controls financial resources (cash, materials, labor, and equipment)
SC
including: owners, general managers, project managers, estimators,
superintendents,and crew forepersons.
3. The way construction companies do business is very different than most companies.
The reasons for this include: 1) for many construction companies, their entire
productconsists of one of a kind construction projects; 2) their projects occurs at
different locations each time; 3) they receive progress payments from which
O
retention is withheld; and 4) they rely heavily on subcontractors to perform the
work.
4. Accounting for financial resources include: 1) tracking project and general overhead
R
costs, 2) ensuring that a proper construction accounting system has been set up and
isoperating properly, 3) tracking committed costs and projecting the project costs
at completion, 4) calculating under and over billings, 5) preparing financial
statements,and 6) managing the company’s finances so that the financial ratios are
EG
in line with the rest of the industry.
5. Managing costs and profits include: 1) controlling project costs, 2) monitoring and
projecting profitability, 3) setting and managing labor burden markups, 4)
managingoverhead, 5) setting profit margins, and 6) monitor the profitability of
individual customers.
6. Managing cash flows include: 1) matching the use of subcontractor and in-
U
house labor to available cash, 2) making sure that sufficient cash is available to
take on additional projects, 3) preparing income tax projections, 4) preparing
annual cashflow projections, and 5) arranging for financing.
7. Construction managers must select where to invest the company’s resources
ID
andselect the most economical construction equipment to use.
8. The answer to this question will vary from student to student.
ES
