Mets Construction enters into a contract with a customer to build a warehouse for $1,000,000 on March 30, 2014 with a
performance bonus of $100,000 if the building is completed by July 31, 2017. The bonus is reduced by $10,000 each week
that completion is delayed. Mets commonly includes these completion bonuses in its contracts and, based on prior
experience, estimates the following completion outcomes:
Completed by Probability
July 31, 2017 70%
August 7, 2017 15%
August 14, 2017 10%
August 21, 2017 5%
A) Determine the transaction price of this contract, assuming Mets uses Expected Value (probability-weighted)
method.
B) Determine the transaction price of this contract assuming Mets uses Most Likely Outcome method.
