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 $1,910 and sells the remote separately for $180, and offers the entire package for $2,220. VP does not sell the installation service separately. VP is aware that other similar vendors charge $230 for the installation service. VP also estimates that it incurs approximately $180 of compensation and other costs for VP staff to provide the installation service. VP typically charges 50% 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: Adjusted Market Assessment, Expected Cost Plus Margin, and Residual.

Answer 1

Given,

VP Company sells

60 Inch TV (seprately)= $1910

Universal remote(seprately)=$180

Installation sevice cannot be sold Seprately.

Cost of Entire Pacakage of big screen TV(i.e., 60 inch tv+Universal remote+Installation Service)=$2220

Similar installation service is available at $230 in market & Vp estimates it cost at $180

Profit margin is 50% on Cost

Calculation of Stanalone Selling price of the installation service using following approaches:

1) Adjusted Market Assesment

similar vendor sales installation service at $230

therefore selling price as per adjusted selling price method is $230

2) Expected Cost Plus Margin

cost of installation service estimated by vp is $180 + 50% cost margin

therefore SP as per expected cost margin is(180+50%)= $270

3) Residual

entire pacakge is sold at 2220

and as per total cost as per calculation should be(1910+180+270)=2360

therefore selling price as per residual method is (2360-2220)= $140