Question

Pearl Centre is an experienced home appliance dealer. Pearl Centre also offers a number of services together with the home appliances that it sells. Assume that Pearl Centre sells ovens on a stand- alone basis. Pearl Centre also sells installation services and maintenance services for ovens. However, Pearl Centre does not offer installation or maintenance services to customers who buy ovens from other vendors. Pricing for ovens is as follows. Oven only Oven with installation service Oven with maintenance services Oven with installation and maintenance services $ 1,140 1,260 1,380 1,400 In each instance in which maintenance services are provided, service is separately priced within the arrangement at $240. Additionally, the incremental amount charged by Pearl Centre for installation approximates the amount charged by independent third parties. Ovens are sold subject to a general right of return. If a customer purchases an oven with installation and/or maintenance services, in the event Pearl Centre does not complete the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds $1,140. Assume that a customer purchases an oven with both installation and maintenance services for $1,400. (b) Assume that a customer purchases an oven with both installation and maintenance services for $1,400. Allocate the transaction price of $1,400 among the performance obligations of the contract. (Round percentage allocations to 2 decimal places, e.g. 12.25 and final answers to o decimal places, e.g. 5,275.) Oven Installation Maintenance S

Answer 1

Calculation of allocation of transaction price
allocation = individual item cost*amount/total cost of items
Calculation of total cost of items
oven		1140
Installation (1260-1140)		120
Maintenance		240
Total cost		1500
Allocation
Oven = 1140*(1400/1500)		1064
installation = 120*(1400/1500)		112
maintenance = 240*(1400/1500)		224

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