A303 Packet 5 Name/ Class E5-9 Murkey Consultants provided Lamba Construction wi

Question

A303 Packet 5 Name/ Class E5-9 Murkey Consultants provided Lamba Construction with assistance in implementing various cost-savings initiatives. Murkey's contract specifies that it will receive a flat fee of $100,000 and an additional $40,000 if Lamba reaches a prespecified target amount of cost savings. Murkey estimates that there is a 20% chance that Lamba will achieve the cost-savings target Required 1. Assuming Murkey uses the expected value as its estimate of variable 2. Assuming Murkey uses the most likely value as its estimate of variable 3. Assume Murkey uses the expected value as its estimate of variable consideration, calculate the transaction price. consideration, calculate the transaction price. consideration, but is very uncertain of that estimate due to a lack of experience with similar consulting arrangements. Calculate the transaction price.

Explanation / Answer

1)Estinated transaction price =Flalt fee + [additional fee *% of chance]

                = 100,000 + [40000*.20]

                = 100,000 + 8,000

                = $ 108,000

2)Estimated transaction price : $ 100,000 since the chances of achieving target cost savings is very less (low ,only 20 %]

3)Estimated transaction price : $ 100,000   since the estimated amount cannot be calculated due to lack of experience.

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