Sanjeev Enters into a Contract Offering Variable Consideration

question 77

Multiple Choice

Sanjeev enters into a contract offering variable consideration. The contract pays him $1,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $2,000 and a 40% chance the contract will pay an additional $3,000, depending on the outcome of the consulting contract. Sanjeev concludes that this contract qualifies for revenue recognition over time.
-Assume Sanjeev estimates variable consideration as the most likely amount. What is the amount of revenue Sanjeev would recognize for the first month of the contract?

• A) $1,000
• B) $1,333
• C) $1,400
• D) $1,200

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Definitions:

Cost Objects

Items or activities for which costs are measured and assigned, such as products, services, projects, or departments.

Departmental Overhead Rate Method

A cost accounting technique that allocates overhead expenses to specific departments based on varying rates, often used to more accurately reflect the costs incurred by each department.

Production Department

A specific area or division within a company where products are manufactured or assembled.

Volume-related Measures

Metrics or indicators that quantify the amount of production or sales activity, often used for planning, decision-making, or performance evaluation.