Final answer:
Kunze Company should allocate the total contract price based on each obligation's stand-alone selling price to properly match revenue with performance obligations.
Step-by-step explanation:
When Kunze Company sells bundled products to a customer and correctly identifies separate performance obligations, Kunze should allocate the total contract price in proportion to each obligation's stand-alone selling price. This is because the stand-alone selling price is the price at which an entity would sell a promised good or service separately to a customer. The proposed methodology for allocation is in line with revenue recognition standards, which seek to match revenue earned to the associated delivered performance obligations.