Allocation of Transaction Price Rix Company sells home appliances and provides installation and service for its customers. On April 1, 2019, a customer purchased a dishwasher that Rix normally sells for $1,000. Assume that Rix cannot directly observe the stand-alone selling prices of the installation and service contracts. However, Rix has determined that the cost of the installation services is $150 and historical margins relative to cost average 20%. Therefore, Rix estimates the stand-alone selling price of the installation services using an expected cost plus a margin approach. Rix decides to use an adjusted market assessment approach to estimate the selling price of the service contract. Based on information obtained from competitors, Rix determines the average selling price of a similar service contract to be $350. Rix believes that it has a higher cost structure than its competitors and that it should increase this estimate by 10% to achieve an acceptable margin. Because the customer purchased all three items as a bundle, Rix charged the customer $1,400. Required: Determine the stand-alone selling price of each good or service. Stand-alone selling price How should the transaction price be allocated among the products? (Round your answers to the nearest dollar.) Transaction price Dishwasher Installation Service contract
Allocation of Transaction Price
Rix Company sells home appliances and provides installation and service for its customers. On April 1, 2019, a customer purchased a dishwasher that Rix normally sells for $1,000. Assume that Rix cannot directly observe the stand-alone selling prices of the installation and service contracts. However, Rix has determined that the cost of the installation services is $150 and historical margins relative to cost average 20%. Therefore, Rix estimates the stand-alone selling price of the installation services using an expected cost plus a margin approach.
Rix decides to use an adjusted market assessment approach to estimate the selling price of the service contract. Based on information obtained from competitors, Rix determines the average selling price of a similar service contract to be $350. Rix believes that it has a higher cost structure than its competitors and that it should increase this estimate by 10% to achieve an acceptable margin.
Because the customer purchased all three items as a bundle, Rix charged the customer $1,400.
Required:
-
Determine the stand-alone selling price of each good or service.
Stand-alone selling price -
How should the transaction price be allocated among the products? (Round your answers to the nearest dollar.)
Transaction price Dishwasher Installation Service contract
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