Concord Appliance Center is an experienced home appliance
dealer. Concord Appliance Center also offers a number of services
for the home appliances that it sells. Assume that Concord
Appliance Center sells ovens on a standalone basis. Concord
Appliance Center also sells installation services and maintenance
services for ovens. However, Concord Appliance Center does not
offer installation or maintenance services to customers who buy
ovens from other vendors. Pricing for ovens is as
follows.
Oven only | $800 | |
Oven with installation service | 860 | |
Oven with maintenance services | 990 | |
Oven with installation and maintenance services | 1,010 |
In each instance in which maintenance services are provided, the
maintenance service is separately priced within the arrangement at
$190. Additionally, the incremental amount charged by Concord
Appliance Center 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 Concord Appliance Center
does not complete the service satisfactorily, the customer is only
entitled to a refund of the portion of the fee that exceeds
$800.
Assume that a customer purchases an oven with both installation and
maintenance services for $1,010.
(b) Indicate the amount of revenue that should be
allocated to the oven, the installation, and to the maintenance
contract. (Do not round intermediate calculations.
Round final answers to 2 decimal places.)
Oven |
$enter a dollar amount rounded to 2 decimal places |
|
---|---|---|
Installation |
$enter a dollar amount rounded to 2 decimal places |
|
Maintenance |
$ |
Answer:
Step 1)The standalone cost of installation service = cost of oven with installation -cost of oven only
= 860-800
= 60
Step 2)Allocation of purchase cost and weights of standalone price
Item | Standalone price | Weight | Share in purchase cost of 1010 |
Oven | 800 | 800/1050 = 76.19048% | 1010*76.19048%= 769.52 |
Installation | 60 | 60/1050= 5.71429% | 1010*5.71429%= 57.71 |
Maintenance | 190 | 190/1050 = 18.09524% | 1010*18.09524%= 182.76 |
1050 | 1010 |
b)
Item | Amount of revenue allocated |
Oven | 769.52 |
Installation | 57.71 |
Maintenance | 182.76 |
Total | 1010 |
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