Question

Hospital Equipment Company (HEC) acquired several fMRI machines for its inventory at a cost of $3,300 per machine. HEC usually sells these machines to hospitals at a price of $6,720. HEC also separately sells 12 months of training and repair services for fMRI machines for $1,680. HEC is paid $6,720 cash on November 30 for the sale of an fMRI machine delivered on December 1. HEC sold the machine at its regular price, but included one year of free training and repair service. Required: For the machine sold at its regular price, but with one year of “free” training and repair service, determine the dollar amount of revenue earned from the equipment sale versus the revenue earned from the training and repair services.

Answer 1

Stand alone selling price of the equipment = $6,720

Stand alone selling price of training and repair services = $1,680

Total = $6,720 + $1,680 = $8,400

Now,

Both the equipment and the services were sold for a total of $6,720. This amount should be allocated to revenue from equipment sale and revenue from training and repair services in the proportion of their stand alone selling price.

Therefore,

Revenue earned from the equipment sale = $6,720 x $6,720/$8,400 = $5,376

Revenue from training and repair services = $6,720 x $1,680/$8,400 = $1,344