Question

How do I calculate the estimated standalone selling price using the the adjusted market assessment approach, the expected-cost-plus-a-margin approach, and the residual approach?

Let's say my numbers are

Standalone selling price: 179,000

Market Competitor Price: 137000

Forecasted Cost: 139200

The totals are

Market Competitor Prices Total: 649000

Forecasted Cost Total: 580000

Answer 1

In the adjusted market assessment approach the market in which the goods or services are sold is considered and a price is estimated that a customer of that market would be willing to pay. This method is suitable in situations where a competitor offers similar goods or services to use as a basis in the analysis.

So here we can see that the market competitor price is 137000. So as per adjusted market approach the stand alone selling price would be 137,000.

2.In Expected cost plus margin approach we forecast the costs of fulfilling the performance obligation and adds margin at the amount the market would be willing to pay.

We do not have the data of margin so assume that market is willing to pay 20 % margin. So in that case selling price would be forecasted cost+20%

=139200+20% of 139200= 167,040

3.Residual approach allows an entity that has standalone selling prices for one or more of the performance obligations to allocate the remaining transaction price to the goods or services that do not have observable standalone selling prices. The sum of the observable standalone selling prices are deducted from the total transaction price to find the residual estimated standalone selling price for the goods or services that do not have observable standalone selling prices.

So, in this question stand alone selling price given is 179,000. Market Competitor Prices Total= 649000(Assuming it to be total sales).

So Residual price would be- 649000-179000=470000