Pina Corp. enters into a contract with a customer to build an apartment building for $921,300. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $156,000 to be paid if the building is ready for rental beginning August 1, 2021. The bonus is reduced by $52,000 each week that completion is delayed. Pina commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Determine the transaction price for the contract, assuming Pina has limited information with which to develop a reliable estimate of completion by the August 1, 2021, deadline.

Question Completion:

Completed by August 1, 2021 August 8, 2021 August 15, 2021 After August 15, 2021 Probability 70 % 20 6 4.

Pina Corp.

The transaction price for the contract, assuming Pina has limited information with which to develop a reliable estimate of completion by the August 1, 2021, deadline is:

= $921,300.

Explanation:

Data and Calculations:

Completed by           Probability

August 1, 2021                 70%

August 8, 2021                20%

August 15, 2021                 6%

After August 15, 2021        4%

Total =                             100%

Contract price = $921,300

Performance bonus = $156,000

Expected completion date = August 1, 2021

Reduction of bonus per week if completion is delayed = $52,000

After August 15 (three weeks of non-completion), there is no performance bonus because it would have been reduced to $0 ($156,000/$52,000 = 3 weeks).

answer; ///product strategy;