Question

E18.5 (LO 2) (Determine Transaction Price) Jeff Heun, president of Concrete Always, agrees to construct a concrete cart path at Dakota Golf Club. Concrete Always enters into a contract with Dakota to construct the path for $200,000. In addition, as part of the contract, a performance bonus 1 0.00 will be paid based on the timing of completion. The performance bonus will be paid fully if competcu by the agreed-upon date. The performance bonus decreases by $10.000 per week for every week Deyond the agreed-upon completion date. Jeff has been involved in a number of contracts that had performance bonuses as part of the agreement in the past. As a result, he is fairly confident that he will receive a good portion of the performance bonus. Jeff estimates, given the constraints of his schedule related to other jobs, that there is 55% probability that he will complete the project on time, a 30% probability that he will be 1 week late, and a 15% probability that he will be 2 weeks late. Instructions a. Determine the transaction price that Concrete Always should compute for this agreement. b. Assume that Jeff Heun has reviewed his work schedule and decided that it makes sense to complete this project on time. Assuming that he now believes that the probability for completing the project on time is 90% and otherwise it will be finished 1 week late, determine the transaction price.

Answer 1

2 Answer: a) Determine the transaction price that concrete should compede for agreemenit. Transaction price = Coutract price +. Estimated pertama :: Transactions exi $200,000 + $ 34,000€ bonce's is the transaction price that concrete should compute for agreement working Note: is $ 234,000. calculations Estimaled performance bonus: particulars o probability workings 13 Amounty Estimated Amount project completed on time 55% $ 40,000 $40,000 | $22,000 Tweek later 301. $40,000-topool $ 30000 $9.000 2 weeks late 15% $40.000-110,000x] $29000 $3.000 Total estimated performaua bonus $ 34,000 16) Determine the Transaction prica Transaction price e contract price + Estimated performance bones. : $ 200,000 + $ 39000 .: Transaction price = $239,000 working Note: calculate the Estimated performance boucs. posticulars probability workings Amount Estimated amount project completed artine! 90%. 1 $ 40,000 $40,000 $36.000 I week lalē 60% 140,000-sloooo $30,000 3,000 $ 39,000 Total Estimated postormance boucis