Question

Thomas Consultants provided Bran Construction with assistance in implementing various cost-savings initiatives. Thomas’s contract specifies that it will receive a flat fee of $62,000 and an additional $32,000 if Bran reaches a prespecified target amount of cost savings. Thomas estimates that there is a 20% chance that Bran will achieve the cost-savings target. Assuming Thomas uses the expected value as its estimate of variable consideration, calculate the transaction price.

Answer 1

The transaction price is $68,400

Step-by-step explanation:

The computation of the transaction price is shown below:

= Flat fee of contract + Additional amount × estimated percentage

= $62,000 + $32,000 × 20%

= $62,000 + $6,400

= $68,400

For computing the accurate transaction price, we have to add the flat fee with the estimated percentage and the additional amount.