Fit & Slim (F&S) is a health club that offers members various gym services. Requ

Question

Fit & Slim (F&S) is a health club that offers members various gym services.

Required:

1.

Assume F&S offers a deal whereby enrolling in a new membership for $700 provides a year of unlimited access to facilities and also entitles the member to receive a voucher redeemable for 25% off yoga classes for one year. The yoga classes are offered to gym members as well as to the general public. A new membership normally sells for $720, and a one-year enrollment in yoga classes sells for an additional $500. F&S estimates that approximately 40% of the vouchers will be redeemed. F&S offers a 10% discount on all one-year enrollments in classes as part of its normal promotion strategy.

Indicate below whether each item is a separate performance obligation. For each separate performance obligation you have indicated, allocate a portion of the contract price.

1.

Assume F&S offers a deal whereby enrolling in a new membership for $700 provides a year of unlimited access to facilities and also entitles the member to receive a voucher redeemable for 25% off yoga classes for one year. The yoga classes are offered to gym members as well as to the general public. A new membership normally sells for $720, and a one-year enrollment in yoga classes sells for an additional $500. F&S estimates that approximately 40% of the vouchers will be redeemed. F&S offers a 10% discount on all one-year enrollments in classes as part of its normal promotion strategy.

Explanation / Answer

Part a : yes, each it them is a separate performance obligation

Reason or justification : membership fee and yoga fee both are separate performance obligation as gym is not imposing any mandatory provision on member enrolling for membership to also compulsorily opt for yoga classes

Part b: allocation of portion of contract price

Strategy 1- Normal contract price without 25% off strategy for yoga classes... Gym fees $720 minus 10% all time off

I.e $720-$72(10%*$720) = $648

For Yoga fees= $500 minus 10% all time off

I.e $500-$50(10%*$500) = $450

Now let's work on the discounted prices

Strategy 2

For membership fee $700 assuming that 10% all time off will also be available under this strategy.

So membership fee under this started will be $700 minus 10%*$700

That is $700-$70= $630

For yoga classes fee $500 minus 25% off for one year and estimate of gym says that 40% of the vouchers will be redeemed so that means maximum discount will be ($500*25%) = $125 and additional all time 10%discount that is $500*10% =$50

So undergo this strategy yoga classes fee will be $500-$125 - $50 = $325..

Now let's compare both the price under two given strategy

Option 1 or strategy 1

Normal price Membership = $648

Yoga fee =$450

Option 2 or strategy 2

Membership fee = $630

Andyoga fee = $325

Answer

So cost apportioned under contract is

Specific performance obligation

Membership fee = $648-$630= $18

And yoga fee= $450-$325= $125

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