Robotics Inc. contracts with a customer to build a custom robot to be used in the customer’s manufacturing operations for $ 2,000,000. If the robot is delivered and operational by January 1, the customer will pay Robotics a $ 200,000 performance bonus. For every week that the robot is not operational, the bonus is reduced by $ 100,000. Robotics estimates the following possible outcomes and probabilities:
Completed by January .......... 140%
One week late .............. 40%
Two weeks late ............ 20%
Determine the transaction price that Robotics should use for this contract when it is signed.