Jeff Heun, president of Coronado Always, agrees to construct a concrete cart pat
ID: 2540490 • Letter: J
Question
Jeff Heun, president of Coronado Always, agrees to construct a concrete cart path at Dakota Golf Club. Coronado Always enters into a contract with Dakota to construct the path for $202,000. In addition, as part of the contract, a performance bonus of $46,400 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 $11,600 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 50% probability that he will complete the project on time, a 30% probability that he will be 1 week late, and a 20% probability that he will be 2 weeks late.
Determine the transaction price that Coronado Always should compute for this agreement.
Assume that Jeff Heun has reviewed his work schedule and decided that it makes sense to complete this project on time. Assuming that he now believes that the probability for completing the project on time is 88% and otherwise it will be finished 1 week late, determine the transaction price.
Jeff Heun, president of Coronado Always, agrees to construct a concrete cart path at Dakota Golf Club. Coronado Always enters into a contract with Dakota to construct the path for $202,000. In addition, as part of the contract, a performance bonus of $46,400 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 $11,600 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 50% probability that he will complete the project on time, a 30% probability that he will be 1 week late, and a 20% probability that he will be 2 weeks late.
Determine the transaction price that Coronado Always should compute for this agreement.
Assume that Jeff Heun has reviewed his work schedule and decided that it makes sense to complete this project on time. Assuming that he now believes that the probability for completing the project on time is 88% and otherwise it will be finished 1 week late, determine the transaction price.
Explanation / Answer
Answer
A.
Calculation of Performance Bonus based on other jobs
46400-(11600*1)
=34800
46400-(11600*2)
=23200
Transaction price = $202000+$38280 = $240280
B.
Calculation of Performance Bonus:
46400-(11600*1)
Transaction price = $202000+$45008 = $247008
PARTICULARS AMOUNT ROBABILITY ESTIMATED AMOUNT Project completed on time 46400 50% 23200 If,1 week late46400-(11600*1)
=34800
30% 10440 If,2 week late46400-(11600*2)
=23200
20% 4640 Total $38280Related Questions
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