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Majestic Corporation provides call-center ordering services for Essential Oils magazine. Majestic receives an annual fee of $200,000 for providing such services and is also eligible to receive a performance bonus up to 65,000 if the average customer wait times are below certain thresholds at the end of the year. Ising historical results as well as current expectations, Majestic estimates the chances of achieving the different performance bonuses as shown in the table here. ssume there are NO revenue constraints, and the entity uses the expected value approach to record variable consideration when recognizing revenue during the period. Which is the amount of the performance bonus management can recognize in the transaction price? Average wait times Performance Bonus % Chance of Achieving < 1 minute $65,000 15% $45,000 $25,000 $5,000 < 2 minutes <3 minutes < 4 minutes 0 10% 50% 20% <5 minutes Management would include the variable consideration in the transaction price in the amount of $27,750. Management would not include the variable consideration in the transaction price because the amount of consideration is outside of the entity's influence. Management would include the variable consideration in the transaction price in the amount of $25,000. Management would not include the variable consideration in the transaction price because the amount of consideration is uncertain and is not expected to be resolved for a long period of time. 5%

Majestic Corporation provides call-center ordering services for Essential Oils magazine. Majestic receives an annual fee of $200,000 for providing such services and is also eligible to receive a performance bonus up to 65,000 if the average customer wait times are below certain thresholds at the end of the year. Ising historical results as well as current expectations, Majestic estimates the chances of achieving the different performance bonuses as shown in the table here. ssume there are NO revenue constraints, and the entity uses the expected value approach to record variable consideration when recognizing revenue during the period. Which is the amount of the performance bonus management can recognize in the transaction price? Average wait times Performance Bonus % Chance of Achieving < 1 minute $65,000 15% $45,000 $25,000 $5,000 < 2 minutes <3 minutes < 4 minutes 0 10% 50% 20% <5 minutes Management would include the variable consideration in the transaction price in the amount of $27,750. Management would not include the variable consideration in the transaction price because the amount of consideration is outside of the entity's influence. Management would include the variable consideration in the transaction price in the amount of $25,000. Management would not include the variable consideration in the transaction price because the amount of consideration is uncertain and is not expected to be resolved for a long period of time. 5%

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Majestic Corporation provides call-center ordering services for Essential Oils magazine. Majestic receives an annual fee of $200,000 for providing such services and is also eligible to receive a performance bonus up to $65,000 if the average customer wait times are below certain thresholds at the end of the year. Using historical results as well as current expectations, Majestic estimates the chances of achieving the different performance bonuses as shown in the table here. Assume there are NO revenue constraints, and the entity uses the expected value approach to record variable consideration when recognizing revenue during the period. Which is the amount of the performance bonus management can recognize in the transaction price? Average wait times Performance Bonus % Chance of Achieving $65,000 15% < 1 minute < 2 minutes < 3 minutes < 4 minutes < 5 minutes $45,000 $25,000 $5,000 0 10% 50% 20% 5% a. Management would include the variable consideration in the transaction price in the amount of $27,750. b. Management would not include the variable consideration in the transaction price because the amount of consideration is outside of the entity's influence. c. Management would include the variable consideration in the transaction price in the amount of $25,000. d. Management would not include the variable consideration in the transaction price because the amount of consideration is uncertain and is not expected to be resolved for a long period of time.
Transcribed Image Text:Majestic Corporation provides call-center ordering services for Essential Oils magazine. Majestic receives an annual fee of $200,000 for providing such services and is also eligible to receive a performance bonus up to $65,000 if the average customer wait times are below certain thresholds at the end of the year. Using historical results as well as current expectations, Majestic estimates the chances of achieving the different performance bonuses as shown in the table here. Assume there are NO revenue constraints, and the entity uses the expected value approach to record variable consideration when recognizing revenue during the period. Which is the amount of the performance bonus management can recognize in the transaction price? Average wait times Performance Bonus % Chance of Achieving $65,000 15% < 1 minute < 2 minutes < 3 minutes < 4 minutes < 5 minutes $45,000 $25,000 $5,000 0 10% 50% 20% 5% a. Management would include the variable consideration in the transaction price in the amount of $27,750. b. Management would not include the variable consideration in the transaction price because the amount of consideration is outside of the entity's influence. c. Management would include the variable consideration in the transaction price in the amount of $25,000. d. Management would not include the variable consideration in the transaction price because the amount of consideration is uncertain and is not expected to be resolved for a long period of time.
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