Question

Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a...

Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $1,500, sells the remote separately for $200, and offers the installation service separately for $300. The entire package sells for $1,900.

Required:
How much revenue would be allocated to the TV, the remote, and the installation service?

Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $1,500, sells the remote separately for $200, and offers the installation service separately for $300. The entire package sells for $1,900.

Required:
How much revenue would be allocated to the TV, the remote, and the installation service?

Homework Answers

Answer #1

Solution :

The entire package selling price = $1900

TV Selling price = $1500

Remote Selling price = $200

Installation Service = $300

Selling price of the entire package i.e. $1900 will be divided in the selling price ratio of TV, Remote and Installation Service:

Selling Price Ratio = TV : Remote : Installation Service

In this case

Selling price Ratio = $1500:$200:$300

=$15:$2:$3

Total = 15+2+3 = 20

Hence, revenue allocated to TV = $1900 x 15/20

= $28500/20

= $1425

Revenue allocated to Remote = $1900 x 2/20

=$3800/20

=$190

Revenue allocated to installation service = $1900 x 3/20

=5700/20

=$285

Solved.

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