Question

Minor Music sells a product that contains two performance obligations: the Maestro keyboard and the Maestro teaching software. The Maestro keyboard has a stand-alone selling price of $350. Minor Music sells both the Maestro keyboard and teaching software as a package deal for $500. The Maestro teaching software is not sold separately. Minor Music is aware that teaching software can be purchaed from other vendors for $200. Minor Music prices are generally 10% lower than what is charged by those vendors. Minor Music estimates that it incurs costs of approximately $100 per copy of the teaching software and usually charges 55% above cost on similiar products.

a) Estimate the stand-alone selling price of the software using the residual approach.

b) Estimate the stand-alone selling price of the software using the adjusted market assessment approach.

c) Estimate the stand-alone selling price of the software using the expected cost plus margin approach.

Answer 1

Answer :

Selling price of package deal = $500

Stand alone selling price of keyboard = $350

a). Stand-alone selling price of the software using the residual approach:

Stand-alone selling price of the software = Selling price of software - Stand alone selling price of keyboard

= $500 - $350

= $150

b). Stand-alone selling price of the software using the adjusted market assessment approach.

Stand-alone selling price of the software = Market price of software of other vendors - 10% of charges by other vendors

= $200 - $200*10%

= $180

c). Stand-alone selling price of the software using the expected cost plus margin approach.

Stand-alone selling price of the software = Cost of software + Margin

= $100 + $100*55%

= $100 + $55

= $155