Question

On April 1 Bob the Builder entered into a contract of one-month duration to build a barn for Nolan Bob is guaranteed to receive a base fee of $4,700 for his services in addition to a bonus depending on when the project is completed. Nolan created incentives for Bob to nish the ben as soon as he can without jeopardizing the structural integrity of the bam. Nolon offered to pay an additional 20% of the base fee it the project finished 2 week early and 20% if the project finished a week early. The probability of finishing 2 weeks early is 20% and the probability of finishing a week anys 60%

What is the expected transaction price with variable consideration estimated as the expected value?
Mutiple Choice
a $5.452
b $4.700
c $5,170
d $4465

Answer 1

The expected transaction price with variable consideration for Bob the Builder's contract, taking into account the base fee and the expected bonuses for early completion, is $5,452.

Step-by-step explanation:

To calculate the expected transaction price with variable consideration estimated as the expected value for Bob the Builder's contract to build a barn, we need to consider the probabilities of finishing the project early and the respective bonuses.

The base fee is $4,700. The additional bonuses are 20% of the base fee for finishing 2 weeks early and another 20% for finishing 1 week early.

The expected bonus for finishing 2 weeks early: 20% of $4,700 = $940, and the probability is 20%, so the expected value is 0.20 * $940 = $188.

The expected bonus for finishing 1 week early: 20% of $4,700 = $940, and the probability is 60%, so the expected value is 0.60 * $940 = $564.

Now, we add the expected bonuses to the base fee to find the expected transaction price: $4,700 + $188 + $564 = $5,452.

Thus, the expected transaction price with variable consideration is $5,452, making the correct answer (a) $5,452.