Question

F. Allocation of transaction price: Minarski Electronics sells computers and provides hardware maintenance services. On April 1st, Minarski sold a package deal containing a computer and a one-year unlimited maintenance/repair service for the computer at a bundle price of S1,000. If sold separately, the computer costs $840 and the one-year unlimited maintenance/repair service costs $360. How much revenue does Minarski Electronics recognize for the month ended April 30th, assuming that revenue is accrued monthly?

Answer 1

Answer :

The revenue Minarski Electronics would recognize for the month ended April 30th is $ 725 .

Working Notes :

1). Total bundle price (package deal cost) of computer

= $ 1,000

2). Total Cost of computer if sold seperately

= (840 + 360) = $ 1,200

3). Both the computer and maintainence/repair service cost can be identified and ascertained seperately. Hence it is regarded as performing obligations.

4). Allocation of total bundle price of $ 1,000 separately to :-

a). Computer	(840/1,200) × 1,000	$700
b). Maintenance/repair service cost (1 year)	(360/1,200) × 1,000	$300
Maintainence/repair service cost per month	300/12	$ 25

5). In April, Minarski Electronics sold computer and completed one maintenance/ repair service.

Therefore ,

Revenue recognized for month ended April 30th

= Allocated computer cost + Allocated maintenance/repair cost per month

= $ 700 + $ 25 = $725