Question

Orange Inc. offers a discount on an extended warranty on its oPhone when the warranty is purchased at the time the oPhone is purchased. The warranty normally has a price of $152, but Orange offers it for $121 when purchased along with an oPhone. Orange anticipates a 80% chance that a customer will purchase the extended warranty along with the oPhone. Assume Orange sells to 1,000 oPhones with the extended warranty discount offer. What is the total stand-alone selling price that Orange would use for the extended warranty discount option for purposes of allocating revenue among the performance obligations in those 1,000 oPhone contracts?

Multiple Choice

• $31,000

• $24,800

• $0

• $121,000

Answer 1

Correct option is: $24,800
Workings:
Discount	=	$152 - $121
	=	$                             31
Selling price allocated to warranty	=	(1000 X 80%) X $31
	=	$                     24,800
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