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15-25 Revenue allocation, bundled products. Essence Company blends and sells designer fragrances. It has a Men's Fragrances Division and a Women's Fragrances Division, each with different sales strategies, distribution channels, and product offerings. Essence is now considering the sale of a bundled product called Sync consisting of one bottle of Him, a men's cologne, and one bottle of Her, a women's perfume. For the most recent year Essence reported the following Home Insert Page Layout Formulas Retail Price $ 25.00 $ 50.00 $ 60.00 Product 2 Him 3 Her 4 Sync (Him and Her) 1. Allocate revenue from the sale of each unit of Sync to Him and Her using t he following:

Explanation / Answer

1 a) Under Stand alone revenue allocation method (Amount in $)

b) Incremental Revenue Allocation Method - Him rank 1   (Amount in $)

c) Incremental Revenue Allocation Method - Her rank 1   (Amount in $)

d) Under Shapley value Method, each product will be allocated the average of its allocations in 1b and 1c which is shown as follows:- (Amount in $)

2) If there is no clearly indication of which product is the more important product to the company's strategy, the Shapley value method is the fairest of all the methods because it averages the effect of product rank.

Particulars Him Her Total Stand alone Selling Price 25 50 75 Allocation of Bundled price ($60 in the ratio of 25:50) (Him $60*25/75 = $20) (Her $60*50/75 = $40) 20 40 60

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