Question

In: Accounting

Video Planet (“VP”) sells a big screen TV package consisting of a 60-inch plasma TV, a...

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 $2,295, sells the remote separately for $135, and offers the installation service separately for $270. The entire package sells for $2,600. Required: How much revenue would be allocated to the TV, the remote, and the installation service?

Solutions

Expert Solution

Based on the information available in the question, we can calculate the revenue to be abllocated to the TV, the remote and the installation service as follows:-

Particulars Fair Market Value % of Fair Market Value Package Price Revenue Allocation
TV                 2,295 85.00%           2,600           2,210
Remote                    135 5.00%           2,600              130
Installation service                    270 10.00%           2,600              260
Total                 2,700           2,600

The percentage of fair market value for each item is obtained by :-

(Fair market value of the product/Total Fair market value) . Example :- For TV , it is $2,295/$2,700 = 85%

Please let me know if you have any questions via comments and all the best :)


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