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.

Required:
How much of the contract price should Maya allocate to the machine, installation, and training, respectively?

Answer 1

Machine= 736,000

Installation= 92,000

Training= 92,000

Step-by-step explanation:

Giving the following information:

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.

First, we need to determine the proportion of each:

Machine= 800,000/1,000,000= 0.8

Installation= 100,000/1,000,000= 0.1

Training= 100,000/1,000,000= 0.1

Now, we can allocate:

Machine= 0.8*920,000= 736,000

Installation= 0.1*920,000= 92,000

Training= 0.1*920,000= 92,000