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How much of the contract price should wolf allocate

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Question

Wolf Company produces large pieces of machinery for use in the manufacturing industry. Blue Jay Manufacturing Company purchases a large piece of machinery from Wolf for use in Blue Jay's new production plant.

Though Blue Jay could install the equipment on its own, management decides to include installation of the machinery in its contract with Wolf.

Blue Jay agrees to a total contract price of $850,000 for both the equipment and the installation. Wolf does not offer a discount on the machinery if they complete the installation.

The fair value of the equipment is $850,000 and its cost is $760,000. The fair value of the installation is $50,000 and the cost of the labor to Wolf is $40,000.

How much of the contract price should Wolf allocate to the equipment and installation respectively? If a proportion is necessary, round to the nearest one hundredth of a percent (e.g. .####) and round all answers to the nearest.

Equipment Installation

$807,500

$42,500

$850,000

$0

$802,740

$47,260

$800,000

$50,000

Reference no: EM132319038

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