When Allocating the Transaction Price for a Contract with a Customer

question 1

Multiple Choice

When allocating the transaction price for a contract with a customer, the 'expected cost plus a margin approach' requires the entity to:

• A) evaluate the market in which it purchases goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services.
• B) forecast its expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service.
• C) allocate the price for the goods or services on an 'in-combination' basis.
• D) evaluate the market in which it sells goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services.

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Definitions:

Internal Constraints

Limitations within an organization that restrict its ability to achieve its goals, such as budget constraints, limited manpower, or technology restrictions.

Straight-Line

A method of calculating depreciation or amortization by equally spreading the cost over the useful life of an asset.

Required Rate

The minimum return an investor expects to achieve by investing in a project or security.

Marginal Tax Rate

The percentage of tax applied to your income for each tax bracket in which you qualify.