What is the estimated transaction price

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Reference no: EM13244459

Company X sells standard lawn mowers to Biggy Hardware (BH) for $100. BH is Company X's largest customer. Company X offers BH the following discounts based on purchases in a calendar year:

1 to 999 lawn mowers: 0% discount
1,000 to 1,500 lawn mowers: 3% discount
More than 1,500 lawn mowers: 5% discount

BH's purchasing pattern has been very consistent over its twenty year relationship history with Company X. Company X's management has assigned a 10% probability to a 0% discount, a 70% probability to a 3% discount and a 20% probability to a 5% discount.
a. What is the estimated transaction price if the most likely amount is used?
b. What is the estimated transaction price if the expected value method is used?
c. Should any of the estimated variable consideration included in the transaction price be constrained?

Reference no: EM13244459

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