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How much of the contract price should be allocated

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Question - Mott Company purchases a machine from Janelle Company. Installation of the machine requires specialized knowledge that Mott Company does not possess. Janelle Company regularly includes installation as part of its sales contracts. The machine has a stand-alone price of $50,000, and the value of the installation is estimated to be $5,000. Mott agrees to purchase the machine for $50,000. How much of the contract price should be allocated to the machine and installation respectively?

a. $45,855 and $4,145

b. $50,000 and $5,000

c. $50,000 and $0

d. $45,000 and $5,000

Reference no: EM132711158

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