*Exercise 18-5 Jeff Heun, president of Teal Always, agrees to construct a concre
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Question
*Exercise 18-5 Jeff Heun, president of Teal Always, agrees to construct a concrete cart path at Dakota Golf Club. Teal Always enters into a contract with Dakota to construct the path for $214,000. In addition, as part of the contract, a performance bonus of $38,400 will be paid based on the timing of completion. The performance bonus will be paid fully if completed by the agreed-upon date. The performance bonus decreases by $9,600 per week for every week beyond the agreed-upon completion date. involved in a number of contracts that had As a result, he is fairly confident that he will receive a good portion of the perform estimates, given the constraints of his schedule related to other jo that he will complete the project on time, a 30% probability that he will be 1 week late, and a 10% probability that he will be 2 weeks late. performance bonuses as part of the agreement in the past. ance bonus. Jeff bs that there is 60 % probab ty Determine the transaction price that Teal Always should compute for this agreement. Transaction Price s 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 99% and otherwise it will be finished 1 week late, determine the transaction price. Transaction price Question Attempts: Unlimited Copyright 2000-2018 by Jonn waey & Sonsne or relatedcompanies AS rights reserved. ment/test/qprint.uniExplanation / Answer
Solution a:
Expected performance bonus for teal always = ($38,400*60%) + ($38,400 - 9,600) * 30% + ($38,400 - $9,600 - $9,600)*10%
= $33,600
Transaction price = contract value + Expected performance bonus = $214,000 + $33,600 = $247,600
Solution b:
Expected performance bonus for teal always = ($38,400*99%) + ($38,400 - 9,600) * 1%
= $38,304
Transaction price = contract value + Expected performance bonus = $214,000 + $38,304 = $252,304
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