question archive Jeff Heun, president of Blossom Always, agrees to construct a concrete cart path at Dakota Golf Club

Jeff Heun, president of Blossom Always, agrees to construct a concrete cart path at Dakota Golf Club

Subject:AccountingPrice:9.82 Bought3

Jeff Heun, president of Blossom Always, agrees to construct a concrete cart path at Dakota Golf Club. Blossom Always enters into a contract with Dakota to construct the path for $232,000. In addition, as part of the contract, a performance bonus of $41,600 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 $10,400 per week for every week beyond 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.

(a)

 

Determine the transaction price that Blossom Always should compute for this agreement.

 

Transaction Price   $enter the transaction price that Blossom Always should compute for this agreemen 

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$267360

Step-by-step explanation

Consider the table;

particulars Probability Working Amount Estimated Amount
Project Completed On time 55% 41600 41600 22880
1 Week Late 30% 41600-(10400*1) 31200 9360
2 Week late 15% 41600-(10400*2) 20800 3120
Total estimated Performance bonus       35360

 

Transaction Price is;

= Contract Price + Estimated performance Bonus

Where,

Contract Price = $232000

Estimated Performance Bonus = 35360

Then,

= 232000+35360

=267360

Therefore, transaction Price  $267360

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