Question

A seller estimates the stand-alone selling price of goods and services using the residual approach. Using this method, the seller will estimate the stand-alone price by subtracting from the total contract price the:

Answer 1

The residual approach estimates the stand-alone selling price by deducting the estimated stand-alone selling prices of other contract goods or services from the total contract price.

Step-by-step explanation:

The residual approach to estimating the stand-alone selling price in accounting involves subtracting from the total contract price the sum of the estimated stand-alone selling prices of other goods and services that are part of the contract. This method is often used when there is no observable stand-alone selling price for a good or service. To arrive at a reliable estimate, sellers may take into account factors such as the costs of production, the prices of related goods in production, sellers' expectations, and the number of sellers in the market.