Concept explainers
Approaches for estimating stand-alone selling prices
• LO5–6
(This exercise is a variation of E 5–3.)
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 $1,750 and sells the remote separately for $100, and offers the entire package for $1,900. VP does not sell the installation service separately. VP is aware that other similar vendors charge $150 for the installation service. VP also estimates that it incurs approximately $100 of compensation and other costs for VP staff to provide the installation service. VP typically charges 40% above cost on similar sales.
Required:
1. Estimate the stand-alone selling price of the installation service using the adjusted market assessment approach.
2. Estimate the stand-alone selling price of the installation service using the expected cost plus margin approach.
3. Estimate the stand-alone selling price of the installation service using the residual approach.
Want to see the full answer?
Check out a sample textbook solutionChapter 5 Solutions
INTERMEDIATE ACCOUNTING
- 5 Revenue mix, new and upgrade customers. Zapo 1-2-3 is a top-selling spreadsheet product. Zapo is about to release Version 5.0. It groups its customers into two groups new customers and upgrade customers (those who previously purchased Zapo 1-2-3 Version 4.0 or earlier). Although the same physical product is provided to each customer group, sizable differences exist in their selling prices and variable marketing costs: Selling price Variable cost: Manufacturing Marketing New Customers $25 65 $210 90 a. New 50%/upgrade 50%. b. New 90% / upgrade 10% Upgrade Customers $120 $25 15 40 The fixed costs of Zapo 5.0 are $14,000,000. The planned revenue mix in units is 60% new customers and 40% upgrade customers. REQUIRED 1. What is the Zapo 1-2-3 Version 5.0 breakeven point in units, assuming that the planned 60/40 mix is maintained? 2. If the mix is maintained, what is the operating income when 200,000 units are sold? 3. Show how the breakeven point in units changes with the following…arrow_forwardOnawa Ltd manufactures a top-selling electronic spreadsheet product called Cell 123. Onawa is aboutto release version 8. It divides its customers into 2 groups: new customers and upgrade customers(those who previously purchased Cell 123, version 7 or earlier versions). Although the same physicalproduct is provided to each customer group, sizeable differences exist in selling prices and variablemarketing costs New customers Upgrade customers N$ N$ Selling price 210 120 Variable costs: Manufacturing (25) (25) Marketing (65) (15) The fixed costs of Cell 8 are N514 000 000. The planned ratio of new customers to upgrade customers isexpected to be 6:4 respectively requirement:a) Calculate Onawa Ltd individual break-even point both in units and sales revenue, assuming thatthe customers will come as planned.b) Ifthe planned sales mix is attained, calculate the operating income when 200 000 units are sold.c) The CVP analysis as any management tool has some limitations.…arrow_forwardrtainment 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 Winterface with other parts of the customer's home staff The installation includes programming the remote to have t system VP concludes that the TV, remote, and installation service are separate performance obligations VP sells the 60-inch TV the package for $2.300 VP does not sell the separately for $1.950 and sells the remote separately for $200, the installation service VP also estimates that installation service separately Vis aware that other similar provide the installation service. VP typically charges 30% ncurs approximately $200 of compensation and other costs t 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 Adued market assessment Expected cost plus margin Residual 1,900arrow_forward
- Pkg Acc Infor Systems MS VISIO CDFinanceISBN:9781133935940Author:Ulric J. GelinasPublisher:CENGAGE L