Appliance Center is an experienced home appliance dealer.
Appliance Center also offers a number of services for the home
appliances that it sells. Assume that Appliance Center sells ovens
on a standalone basis. Appliance Center also sells installation
services and maintenance services for ovens. However, 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 | 850 | |
Oven with maintenance services | 1,000 | |
Oven with installation and maintenance services | 990 |
In each instance in which maintenance services are provided, the
maintenance service is separately priced within the arrangement at
$200. Additionally, the incremental amount charged by 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 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 $990. Based on its experience, Appliance
Center believes that it is probable that the installation of the
equipment will be performed satisfactorily to the customer. Assume
that the maintenance services are priced separately (i.e., the
three components are distinct).
(b) Indicate the amount of revenue that should be
allocated to the oven, the installation, and to the maintenance
contract.
Individual cost for each item:
Oven = 800
Installation = 850-800=50
Maintenance= 200
Total : 1,050
Allocation: cost of individual item * amount paid /total cost of individual item
Oven : 800*990/1,050=$ 754.29
Installation : 50*990/1,050=$ 47.14
Maintenance : 200*990/1,050=$188.57
I HOPE IT USEFUL TO YOU IF YOU HAVE ANY DOUBT PLZ COMMENT GIVE ME UP-THUMB. THANKS....
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