Question

Bria Furniture sells bed frames and mattresses. One of its products is a premium therapeutic bed set produced by OmniSleep, which comes with a mattress and a bed frame. Bria offers a package consisting of the mattress, the frame, and on-site installation by its staff. All of these components can be sold separately, as often done by other vendors, so Bria concludes that these are separate performance obligations. Bria sells the OmniSleep package for $3,800. The mattress and the frame are sold separately for $2,400 and $1,265, respectively. Other vendors in the same area typically charge $270 for on-site installation. Bria does not sell on-site installation separately. On average, the prices charged by Bria are 10% higher than those of its competitors. Bria estimates that it incurs about $135 of compensation and other costs to provide the installation service. The profit margin over cost is estimated to be approximately 40%.

Required:

(a) Estimate the stand-alone selling price of the installation service using the adjusted market assessment approach.
(b) Estimate the stand-alone selling price of the installation service using the expected cost plus margin approach.
(c) Estimate the stand-alone selling price of the installation service using the residual approach.

	(a) Stand-alone selling price (b) Stand-alone selling price (c) Stand-alone selling price

Answer 1

(A)

stand-alone selling price of the installation service using the adjusted market assessment approach

= installation charges of other vendors + adjustment on market price

= $270 + ($270 x 10%)

= $297

(B)

stand-alone selling price of the installation service using the expected cost plus margin approach

= cost of installation + profit margin on cost

= $135 + ($135 x 40%)

= $189

(C)

stand-alone selling price of the installation service using the residual approach

= total package cost - cost of mattress - cost of frame

= $3800 - $2400 - $1265

= $135