ABC Company enters into a contract with Edmond Library to help them streamline their purchasing process.The contract specifies that Edmond Library will pay ABC $50,000 in the form of a fixed fee plus an additional $20,000 if the library achieves $200,000 in cost savings.ABC estimates a 55% chance that the library will achieve a $200,000 savings.Assuming ABC estimates that the transaction price is the expected value transaction price.The transaction price is recorded as ________.
A)$50,000
B)$61,000
C)$70,000
D)$75,000

Question

Quizplus · Accepted Answer

The transaction price is the expected value transaction price, which is calculated by adding the probability-weighted amount of all possible amounts. 
Thus, the expected additional payment is: 
$20,000 x 0.55 = $11,000
Therefore, the expected transaction price would be:
$50,000 + $11,000 = $61,000. 
Thus, the answer is B.

ABC Company Enters into a Contract with Edmond Library to Help