Question

Minarski Electronics sells computers and provides hardware maintenance services. On April 1^st, Minarski sold a package deal containing a computer and a one-year unlimited maintenance/repair service for the computer at a bundle price of $1,000. If sold separately, the computer costs $732 and the one-year unlimited maintenance/repair service costs $468. How much revenue does Minarski Electronics recognize for the month ended April 30^th, assuming that revenue is accrued monthly?

Multiple Choice

• $39.00

• $642.50

• $1,000

• $771.00

Answer 1

Answer $642.5

Individual cost of computer - $ 732

Cost of computer proportionate to bundle price of $1000

= ($732 /$1,200 ) * $1,000

= $610

Individual cost of one year warranty - $468

Cost of one year warranty proportionate to $1,000

= ($468/ $1,200) * $1,000

= $390

One month cost of warranty = $390 / 12 = $32.5

Revenue to be recognized for the month ended April 30th = $610 + $32.5

Since company provides Warranty service over the year entire revenue can't be recognized at the beginning of year. It should be spilited over months to get per month revenue to be recognized in income statement.