Question

If reliable home products determines that the standalone selling price (ssp) of its washing machine is $700, and the ssp of the installation is $150, and reliable sells these to the customer together for $800, what amount of revenue should be allocated to the washing machine sale?

a. $700
b. $850
c. $743.75
d. $658.82
e. $550

Answer 1

The amount of revenue that should be allocated to the washing machine sale is $658.82 (option d), calculated by finding the proportion of the washing machine's standalone selling price to the total standalone selling prices of both items and applying this proportion to the bundle price.

Step-by-step explanation:

The question revolves around the allocation of revenue to products sold as a bundle, which includes a washing machine and installation services. In order to determine the correct amount of revenue that should be allocated to the washing machine when sold together with installation service for a total of $800, we need to use the concept of the standalone selling price (SSP) for each item.

Here, the SSP for the washing machine is $700 and for the installation is $150. Together, these add up to $850, which is the total SSP for both items sold separately. To find out how much of the $800 sale price should be allocated to the washing machine, we calculate the proportion of the washing machine's SSP to the total SSP, and then apply this proportion to the $800 bundle price.

Step-by-step calculation:

1. Calculate the total SSP: $700 (washing machine) + $150 (installation) = $850.
   
   
2. Calculate the proportion of the washing machine's SSP to the total SSP: $700 / $850 = 0.8235 (approximately).
   
   
3. Allocate the revenue to the washing machine based on the proportion: 0.8235 * $800 = $658.82.

Therefore, the amount of revenue that should be allocated to the washing machine sale is $658.82.