Walker Consulting helped McCall Roofers put various cost saving techniques into place.The contract specifies that Walker will receive a flat fee of $60,000 and an additional $15,000 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?

Question

Quizplus · Accepted Answer

The expected value approach takes into account the probability of reaching the target amount of cost savings. 
The expected value is calculated as follows: 
($60,000) + (0.20 x $15,000) = $63,000. 
Therefore, the transaction price for this product is $63,000.

Walker Consulting Helped McCall Roofers Put Various Cost Saving Techniques