When allocating the transaction price for a contract with a customer, the 'expected cost plus a margin approach' requires the entity to:
A) evaluate the market in which it purchases goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services.
B) forecast its expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service.
C) allocate the price for the goods or services on an 'in-combination' basis.
D) evaluate the market in which it sells goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services.

Question

Quizplus · Accepted Answer

The 'expected cost plus a margin approach' requires the entity to forecast its expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service. This approach ensures that the entity is able to cover its costs and earn a profit margin on the transaction. The other options are either not relevant or incorrect.

When Allocating the Transaction Price for a Contract with a Customer