Question

Jeff Heun, president of Splish Always, agrees to construct a concrete cart path at Dakota Golf Club. Splish Always enters into a contract with Dakota to construct the path for $200,000. In addition, as part of the contract, a performance bonus of $34,000 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 $8,500 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.

Required:
Determine the transaction price that Concrete Always should compute for this agreement.

Answer 1

$234,000

Step-by-step explanation:

Calculation to determine the transaction price that Concrete Always should compute for this agreement

Using this formula

Transaction price=Contract Price* Estimated performance bonus

Let plug in the formula

Transaction price=$200,000+$34,000

Transaction price=$234,000

Therefore the transaction price that Concrete Always should compute for this agreement are $234,000