Jeff Heun, president of Larkspur Always, agrees to construct a concrete cart path at Dakota Golf Club. Larkspur Always signs a contract with Dakota to complete the path for $191,000. As part of the contract, a performance bonus of $48,000 is offered, contingent on timely completion. The full performance bonus is obtainable if the project is finished as agreed. However, the bonus decreases by $12,000 for every week beyond the scheduled completion date. Jeff has prior experience with contracts including performance bonuses, which encourages him to rely on earning a significant portion of this bonus.Jeff estimates that, given his schedule and the potential to take other jobs, he has a 55% chance to finish on time, a 30% chance of being 1 week late, and a 15% chance of being 2 weeks late.Jeff must determine the transaction price Larkspur Always should compute for this agreement.**Transaction Price Calculation:**Transaction Price = $231,800Jeff then reassesses his schedule and decides it's sound to aim for timely completion. Assuming a new probability of 90% for on-time completion and a 10% chance of being just one week late, Jeff recalculates the transaction price.**Revised Transaction Price Calculation:**Transaction Price = ________**Instructions:**Calculate the transaction price based on the given probabilities and potential deductions in bonus for late completion.

Step 1 Basically in contracts agreements, rewards are always adjusted with the probability factor…

Assume that Jeff Heun has reviewed his workschedule 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 90% and otherwise it will be finished 1 week late, determine the transaction price. Transaction price

Assume that Jeff Heun has reviewed his workschedule 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 90% and otherwise it will be finished 1 week late, determine the transaction price. Transaction price

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.

Question

Jeff Heun, president of Larkspur Always, agrees to construct a concrete cart path at Dakota Golf Club. Larkspur Always signs a contract with Dakota to complete the path for $191,000. As part of the contract, a performance bonus of $48,000 is offered, contingent on timely completion. The full performance bonus is obtainable if the project is finished as agreed. However, the bonus decreases by $12,000 for every week beyond the scheduled completion date. Jeff has prior experience with contracts including performance bonuses, which encourages him to rely on earning a significant portion of this bonus.

Jeff estimates that, given his schedule and the potential to take other jobs, he has a 55% chance to finish on time, a 30% chance of being 1 week late, and a 15% chance of being 2 weeks late.

Jeff must determine the transaction price Larkspur Always should compute for this agreement.

**Transaction Price Calculation:**
Transaction Price = $231,800

Jeff then reassesses his schedule and decides it's sound to aim for timely completion. Assuming a new probability of 90% for on-time completion and a 10% chance of being just one week late, Jeff recalculates the transaction price.

**Revised Transaction Price Calculation:**
Transaction Price = ________

**Instructions:**
Calculate the transaction price based on the given probabilities and potential deductions in bonus for late completion.

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