Question details

Assuming Thomas uses the expected value as its estimate of
$ 12.00

(Variable consideration; estimation and constraint)

5-9 Thomas consultants provided Bran constructions with assistance in implementing various cos-saving initiatives.  Thomas’ contract specifies that it will receive a flat fee of $50,000 and an additional $20,000 if Bran reaches a pre-specified target amount of cost saving.  Thomas estimates that there is a 20% chance that Bran will achieve the cost-savings target.

Required:

1. Assuming Thomas uses the expected value as its estimate of variable consideration, calculate the transaction price.

2. Assuming Thomas uses the most likely value as its estimate of variable consideration, calculated the transaction price.

3. Assume Thomas uses the expected value as its estimate of variable consideration, but is very uncertain of that estimate due to a lack of experience with similar consulting arrangements.  Calculate the transaction price.

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