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?
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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