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Compute the amount of revenue that should be allocated

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Reference no: EM131799745

Problerm

Coronado Appliance Center is an experienced home appliance dealer. Coronado Appliance Center also offers a number of services for the home appliances that it sells. Assume that Coronado Appliance Center sells ovens on a standalone basis. Coronado Appliance Center also sells installation services and maintenance services for ovens. However, Coronado 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                                                       $820
Oven with installation service                             870
Oven with maintenance services                         960
Oven with installation and maintenance services   990

In each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $140. Additionally, the incremental amount charged by Coronado 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 Coronado Appliance Center does not complete the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds $820.

(a) Assume that a customer purchases an oven with both installation and maintenance services for $990.

(b) Indicate the amount of revenue that should be allocated to the oven, the installation, and to the maintenance contract.

Reference no: EM131799745

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