Question

Company A enters into a contract with Company B on March 1, and end on Nov. 31. Company A will exchange 100 clothes at discount as well as 100 glasses. The regular wholesale price of clothes is $85, and cost to produce the glasses is $10. All goods company A sells has profit margin of 60%. Company B agrees to pay $9000 in marketing over the life of contract. company A recognizes $9000 when contract is signed. Fifty Clothes and glass will be delievered at March 1, 25 on June 1, 25 in August 1.

1) Calculate transaction price of contract?

2)Wholesale price of glasses and discount Company B got on clothes?

3) Allocation of transaction price?

Answer 1

Answer to the question is as

Company A has entered into contract for which it has recieved $9000 as contract price .Under contract,it is obliged to provide

-100 clothes at discount &

-100 glasses

Regular wholesale price of clothes =$85

So, clothes shared has value =(100*85)-x=8500-x

(here ,x is discount)

Cost to produce glasses =$10

So,cost of glass shared = $100*10=1000

Hereprofit margin is 60% .So,here total contract price is 9000.

So,here

{8500-x)*160%+(1000*250%)}=9000

13600-1.6x=9000-2500=6500

13600-6500=1.6x

Thus x=7100

Discount is 7100 which company got on clothes whose wholesale price is 13600.

Here, 160% is taken on wholesale price of clothes to determine its transaction price and 150% is profit on cost which is equivalent to 60% profit on sale (considered in case of glasses)

Now ,the sale price of clothes to Company B =13600-7100=6500.

So,wholesale price of glass will be :

2500 /1.6=1562.5

As 2500 is inclusive of 60% profit .

Allocation of transaction price will be 6500 for clothes and 2500 for glasses.

Transaction price is 9000

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