Teal Appliance Center is an experienced home appliance dealer. Teal Appliance Ce

Question

Teal Appliance Center is an experienced home appliance dealer. Teal Appliance Center also offers a number of services for the home appliances that it sells. Assume that Teal Appliance Center sells ovens on a standalone basis. Teal Appliance Center also sells installation services and maintenance services for ovens. However, Teal 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 $780 Oven with installation service 850 Oven with maintenance services 1,000 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 $220. Additionally, the incremental amount charged by Teal 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 Teal Appliance Center does not complete the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds $780. Assume that a customer purchases an oven with both installation and maintenance services for $1,020. (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 $ Installation $ Maintenance $

Explanation / Answer

Selling price of only oven = $ 780

Selling price of oven with Installation = $ 850

Selling price of oven with Maintenance = $ 1000

Selling price of oven with Installation & Maintenance = $ 1020

Maintenance services seprately price within the arrangement = $ 220

If customers wil not satisfied with services then co will provide excess over $ 780 it means cost of oven is fixed i.e. $ 480

Allocation of Revenue

Cost of oven (fixed) = $ 780

Maintenance services = $ 220

Installation charges = $ 20 (Balancing figure)

Total = $ 1020

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