On July 15, 2018, Ortiz & Co. signed a contract to provide EverFresh Bakery with

Question

On July 15, 2018, Ortiz & Co. signed a contract to provide EverFresh Bakery with an ingredient-weighing system for a price of $90,000. The system included finely tuned scales that fit into EverFresh's automated assembly line, Ortiz's proprietary software modified to allow the weighing system to function in EverFresh's automated system, and a one-year contract to calibrate the equipment and software on an as-needed basis. (Ortiz competes with other vendors who offer ongoing calibration contracts for Ortiz's systems.) If Ortiz was to provide these goods or services separately, it would charge $60,000 for the scales, $10,000 for the software, and $30,000 for the calibration contract. Ortiz delivered and installed the equipment and software on August 1, 2018, and the calibration service commenced on that date.

How many performance obligations exist in this contract?

(A) 3

(B) 2

(C) 1

(D) 0

Explanation / Answer

Solution:

There are two performance obligations exist in this contract:

1. Combination of scales and software

2. Calibration Contract

Hence option B is the right choice.

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