Ask Question
17 February, 20:42

On April 1st, Mark the Builder entered into a contract of one-month duration to build a barn for Nick. Mark is guaranteed to receive a base fee of $4300 for his services in addition to a bonus depending on when the project is completed. Nick created incentives for Mark to finish the barn as soon as he can without jeopardizing the structural integrity of the barn. Nickn 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 20% and the probability of finishing a week early is 60%.

a) What is the expected transaction price with variable consideration estimated as the expected value?

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

+2
Answers (1)
  1. 17 February, 23:17
    0
    a) The expected transaction price with variable consideration estimated as the expected value is $4,773.

    b) The expected transaction price with variable consideration as the most likely amount is $4,730

    Explanation:

    a)

    Probability Total

    Base Fee $4,300 Fixed $ 4,300

    20% Variable consideration $860 ( = 0.2*4,300) 25% $215

    10% Variable Consideration $430 ( = 0.1*4,300) 60% $258

    0% Variable consideration $ - 15% $ -

    Total $4,773

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

    b)

    Base Fee $4,300 Fixed $ 4,300

    10% Variable Consideration $430 $430

    Total $4,730
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “On April 1st, Mark the Builder entered into a contract of one-month duration to build a barn for Nick. Mark is guaranteed to receive a base ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers