Question

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 $2,040, sells the remote separately for $120, and offers the installation service separately for $240. The entire package sells for $2,300. Required: How much revenue would be allocated to the TV, the remote, and the installation service?

Answer 1

To allocate the revenue to the TV, remote, and installation service, we use the relative standalone selling price method. The allocation for the TV is $1,950, for the remote is $115, and for the installation service is $235.

Step-by-step explanation:

To allocate the revenue to the TV, remote, and installation service, we need to determine the standalone selling prices of each component. The standalone selling prices are the prices at which each component is sold separately. According to the information given, the standalone selling price of the TV is $2,040, the standalone selling price of the remote is $120, and the standalone selling price of the installation service is $240.

To calculate the allocation of revenue, we can use the relative standalone selling price method. This method allocates revenue based on the proportionate value of each component in relation to the total standalone selling price of all components.

The total standalone selling price is $2,400 ($2,040 + $120 + $240). To calculate the allocation for the TV, we divide the standalone selling price of the TV by the total standalone selling price and multiply it by the total package price.

Allocation for TV = ($2,040 / $2,400) * $2,300 = $1,950

Similarly, we can calculate the allocations for the remote and installation service.

Allocation for remote = ($120 / $2,400) * $2,300 = $115

Allocation for installation service = ($240 / $2,400) * $2,300 = $235

Answer 2

TV 1,955

REMOTE 115

INSTALLATION 230

Step-by-step explanation:

We are going to calculate the total sum of the element of the offer and then cross-multiply

`\left[\begin{array}{ccc}$TV&2040&a\\$Remote&120&b\\$Installation&240&c\\$Total&2400&2300\\\end{array}\right]`

`a = (2040)/(2400 ) * 2300 = 1,955`

`b = (120)/(2400 ) * 2300 = 115`

`c = (240)/(2400 ) * 2300 = 230`