Question

Trio Company sells three products, Do, Ra, and Mi, for prices of $8, $7, and $5, respectively. They also offer combinations of the products for reduced overall prices. The following packages are available: (1) a package containing Do and Ra sells for $13.50, (2) a package of Do and Mi sells for $11.50, (3) a package containing Ra and Mi sells for $10.50, and (4) a package of all three products, Do, Ra, and Mi, sells for $17.00.

1. If Trio Company uses the incremental-revenues allocation method and has designated Ra as the primary product, the amount of revenues from a bundled package of all three products to be allocated to Ra would be

a. $7.00.
b. $6.80.
c. $5.95.
d. $4.25.

Answer 1

Option A is correct one.

$7.00

Step-by-step explanation:

Bundle package price (or) Suite price of all the 3 products is 17. This is more than the stand alone price of primary product Ra. Hence as per the rule of Incremental revenue allocation, 100% of stand alone revenue to be allocated to primary product in such case.