Question

Part (b)

A franchise of automotive technicians has a contract arrangement for a rewards program with a car manufacturing company called BMC. For every $5.00 of services performed by an automotive technician at anyone of the franchise locations, the customer is awarded Car Dollars. The Car Dollars can be redeemed towards the purchase of a motor vehicle manufactured by BMC. In total the automotive technicians performed $23,000,000 worth of services in 2020. BMC have estimated the stand-alone selling price of $0.45 and for each Car Dollar awarded, the automotive technicians will pay $0.40 to the BMC for each Car Dollar awarded to its customers. *(a) Your answer is correct. Determine how the $23,000,000 transaction price would be allocated to the two performance obligations (the automotive services and the Car Dollars earned by the customers). (Round percentage of total selling price calculations to 1 decimal place, e.g. 15.2% and final answers to 0 decimal places, e.g. 125.) Automotive Services $121,100,917 Car Dollars $11,899,083) Attempts: 2 of 2 used *(b) Determine the amount of the commission revenue to be reported by the franchises in 2020. Commission Revenue $ Attempts: 0 of 2 used

Answer 1

Cost of services done by automotive technician = $23,000,000

Value of service for which car 1 car dollar issued = $5 of services

No of car dollar issued for the year =$23,000,000 / 5 = 46,00,000 car dollars

Value of car dollar issued by Automotive technician = $0.40

Stand alone selling price of car dollar by BMC = $0.45

Difference in value of car dollar i.e commission = 0.05

Commission = 46,00,000 * 0.05 = $2,30,000.00