Question

Appliance Center is an experienced home appliance dealer. Appliance Center also offers a number of services for the home appliances that it sells. Assume that Appliance Center sells ovens on a standalone basis. Appliance Center also sells installation services and maintenance services for ovens. However, Appliance Center does not offer installation or maintenance services to customers who buy ovens from other vendors. Pricing for ovens is as follows.

Oven only		$800
Oven with installation service		870
Oven with maintenance services		980
Oven with installation and maintenance services		1,020

In each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $180. Additionally, the incremental amount charged by Appliance Center for installation approximates the amount charged by independent third parties. Ovens are sold subject to a general right of return. If a customer purchases an oven with installation and/or maintenance services, in the event Appliance Center does not complete the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds $800.

Assume that a customer purchases an oven with both installation and maintenance services for $1,020. Based on its experience, Appliance Center believes that it is probable that the installation of the equipment will be performed satisfactorily to the customer. Assume that the maintenance services are priced separately (i.e., the three components are distinct).

(b) Indicate the amount of revenue that should be allocated to the oven, the installation, and to the maintenance contract. (Do not round intermediate calculations. Round final answers to 2 decimal places.)

Oven		$enter a dollar amount rounded to 2 decimal places
Installation		$enter a dollar amount rounded to 2 decimal places
Maintenance		$enter a dollar amount rounded to 2 decimal places

Answer 1

Answer:
Total price   = Standalone Price of Oven +Standalone Price of Installation + StandalonePrice of Maintenance                          =   $800 + ($870 (-) $800) + ($980 (-) $800)                          = $800 + $70 + $180 Total price =   $1,050
Allocated price to Oven = Standalone of oven / total price x Customer Price                                                                 = $800 / $1,050 x $1,020              Allocated price to Oven   =    $777.14
Allocated price to Installation = Standalone of oven / total price x Customer Price                                                                              = $70 / $1,050 x $1,020              Allocated price to Installation   =    $68
Allocated price to Maintenance = Standalone of oven / total price x Customer Price                                                                                 = $180 / $1,050 x $1,020              Allocated price to Maintenance   =    $174.86
Oven	$777.14
Installation	$68
Maintenance	$174.86