Orange Inc. offers a discount on an extended warranty on its oPhone when the is

Question

Orange Inc. offers a discount on an extended warranty on its oPhone when the is purchased at the time the oPhone is purchased. The warranty normally has a price $150, but Orange offers it for $120 when purchased along with anticipates a 75% chance that a customer will purchase the extended warranty along with the oPhone. Assume Orange sells to 1,000 oPhones with the extended discount offer. Required: What is the total stand-alone selling price that Orange would use for the extended warranty discount option for purposes of allocating revenue among the performance obligations in those 1,000 oPhone contracts?

Explanation / Answer

Therefore, warranty discount cost is $22,500.

Particulars Amount ($) Discount rate on warranty 30 Estimated warranty purchase 75% Expected sales 1000 Estimated warranty ourchase (NOS) (1,000*75/100) 750 Discount cost (750*$30) 22500

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