8I0 101 omework Help Save&ExitSubmi; Check my work Video Planet (VP) sells a big
ID: 2546335 • Letter: 8
Question
8I0 101 omework Help Save&ExitSubmi; Check my work 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 customers home entertainment system. VP concludes that the TV, performance obligations. VP sells the 60-inch TV separately for $2.030 and sells the remote separately for $240, and offers the entire package for $2,460 VP does not sell the installation service separately. VP is aware that other similar vendors charge $290 for the installation service. VP also estimates that it incurs approximately $240 of and other costs for VP staff to provide the installation service. VP typically charges 50% above cost on similar sales. remote and installation service are separate compensation Required: 1. to 3. Calculate the stand-alone price of the installation service using each of the following approaches Price sted market assessment Expected cost plus margin Residua C Prev 6of 14 Next 8 5 6Explanation / Answer
SOLUTION
1. Adjusted market assessment approach
Under the adjusted market assessment approach, VP would base its estimate of the stand-alone selling price of the installation service on the prices charged by other vendors for that service, adjusted as necessary. Given that the other vendors are similar to VP, no adjustment is necessary.Therefore, VP would estimate the stand-alone selling price of the installation service to be $290, the amount charged by competitors for that service.
2. Expected cost plus margin approach
Under the expected cost plus margin approach, VP would base its estimate of the stand-alone selling price of the installation service on the $240 cost it incurs to provide the service, plus its normal margin of 50% * $240 = $120.Therefore, VP would estimate the stand-alone selling price of the installation service to be $240 + 120 =$360.
3. Residual approach
Under the residual approach, VP would base its estimate of the stand-alone selling price of the installation service on the total selling price of the package ($2,460) less the observable stand-alone selling prices of the TV ($2,030) and universal remote ($240).Therefore, VP would estimate the stand-alone selling price of the installation service to be $2,460 - ($2,030 + 240) =$190.
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