Time Remaining 5 minutes 19 seconds 00:05:19 Item 23 Item 23 Time Remaining 5 minutes 19...

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Item 23

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On April 1^st, Bob the Builder entered into a contract of one-month duration to build a barn for Nolan. Bob is guaranteed to receive a base fee of $5,800 for his services in addition to a bonus depending on when the project is completed. Nolan created incentives for Bob to finish the barn as soon as he can without jeopardizing the structural integrity of the barn. Nolan offered to pay an additional 25% of the base fee if the project finished 2 weeks early and 15% if the project finished a week early. The probability of finishing 2 weeks early is 25% and the probability of finishing a week early is 60%.

What is the expected transaction price with variable consideration estimated as the most likely amount?

Multiple Choice

$5,510
$5,800
$7,861
$6,670

Expert Solution

Answer

		Probability	Total
Base Fee	$ 5,800	Fixed	$ 5,800
25% Variable consideration	$ 1,450	25%	$ 363
15% Variable Consideration	$ 870	60%	$ 522
0% Variable consideration	$ -	15%	$ -
			$ 6,685


it is most likely that project would be finished in 1 week earlier

Base Fee	$ 5,800	Fixed	$ 5,800
Most likely 15%	$ 870		$ 870
			$ 6,670

Option D is Correct

ekkarill92 answered 2 years ago

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