Question

Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $1,830 and sells the remote separately for $140, and offers the entire package for $2,060. VP does not sell the installation service separately. VP is aware that other similar vendors charge $190 for the installation service. VP also estimates that it incurs approximately $140 of compensation and other costs for VP staff to provide the installation service. VP typically charges 30% above cost on similar sales. Required: 1. to 3. Calculate the stand-alone selling price of the installation service using each of the following approaches

Answer 1

Tv = 1772

Remote = 144

Installation = 144

Step-by-step explanation:

To calculate stand-alone selling price we need to calculate the percentage of Fair market value first and then allocate the Entire package price in the products according to the percentage of fair market value.

Percentage of the fair market value of each product

Product Fair Value Percentage

TV $1830 86%

Remote $140 7%

Installation $140 7%

Total $2,110 100%

Stand-alone selling price

Product % of fair market value Stand-alone selling price

TV 86% 1772

Remote 7% 144

Installation 7% 144

Total 100% 2,060