Question

Nash Appliance Center is an experienced home appliance dealer. Nash Appliance Center also offers a number of services for the home appliances that it sells. Assume that Nash Appliance Center sells ovens on a standalone basis. Nash Appliance Center also sells installation services and maintenance services for ovens. However, Nash 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		960
Oven with installation and maintenance services		990

In each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $160. Additionally, the incremental amount charged by Nash 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 Nash 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 $990.

(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

		Standalone Price	Ratio	Transaction Price	Allocated
Oven		$                    800	0.78	$                     990	$       769
Installation	$870-$800	$                      70	0.07	$                     990	$         67
Maintenance		$                    160	0.16	$                     990	$       154
Total		$                 1,030			$       990

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