Walker Consulting helped McCall Roofers put various cost saving techniques into place. The contract specifies that Walker will receive a flat fee of $70,000 and an additional $17,000 if McCall attains a target amount of cost savings. Walker estimates a 20% chance that McCall will reach the target for cost savings. Assuming that Walker uses the expected-value approach, what is the transaction price for this product?
A) $17,000
B) $70,000
C) $73,400
D) $87,000

Question

Quizplus · Accepted Answer

The transaction price using the expected-value approach is calculated as follows: $70,000 (flat fee) + 20% of $17,000 (probability of achieving the target) = $70,000 + $3,400 = $73,400.

Walker Consulting Helped McCall Roofers Put Various Cost Saving Techniques