Question

Shaw Company engages Maya Company to produce a large machine, install the machine, and train their employees on the machine. The machine, installation, and training are distinct, and Maya determines that the contract includes three separate performance obligations. The machine, installation, and training typically cost $800,000, $100,000, and $100,000 respectively when each is provided in a separate contract. Shaw and Maya agree to a total contract price of $920,000. How much of the contract price should Maya allocate to the machine, installation, and training, respectively?

Answer 1

Step-by-step explanation:

Cost

Machine - 800,000

Installation - 100,000

Training - 100,000

Total cost - 1,000,000

Contract price - 920,000

Using ratio to allocate the prices , we have

a)Machine price = cost of machine / total cost * total contract price

800,000/1,000,000*920,000 = 736,000

b) Installation price =cost of installation / total cost * total contract price

100,000/1,000,000*920,000 = 92,000

c) Training price = cost of training / total cost * total contra t price

100/1,000,000 * 920,000 = 92,000

736,000+92,000+92,000= =920,000