Question

Iria Perfume, Incorporated, sold 3,120 boxes of white musk soap during January of 2024 at the price of $50 per box. The company ffers a full refund to unsatisfied customers for any product returned within 30 days from the date of purchase. Based on historical xperience, Aria expects that 4% of sales will be returned. How many performance obligations are there in each sale of a box of soap? How much revenue, sales returns, and net revenue shoul tria recognize in January?

Answer 1

For Iria Perfume, Incorporated, each sale of a box of soap has one performance obligation. The company should recognize $156,000 in revenue from sales, with expected sales returns of $6,250, leading to a net revenue of $149,750 for January 2024.

Step-by-step explanation:

The student's question involves calculating the number of performance obligations, the revenue recognition, and the adjustment for sales returns for Iria Perfume, Incorporated. Each sale of a box of soap represents a single performance obligation as the company is providing a single product, which is the box of white musk soap. However, due to the refund policy, the revenue needs to be adjusted for expected returns.

To calculate the expected returns, we multiply the total sales by the expected return rate (3,120 boxes × 0.04), which equals 124.8, or approximately 125 boxes expected to be returned. The revenue from sales is the price per box times the number of boxes sold (3,120 boxes × $50), which equals $156,000. The sales returns would be the expected returns multiplied by the price per box (125 boxes × $50), which equals $6,250. Therefore, the net revenue that should be recognized in January is the total sales revenue minus the expected sales returns ($156,000 - $6,250), amounting to $149,750.