Reference no: EM131666190

Question: Stand-alone revenue allocation. Magic Systems, Inc., sells computer hardware to end consumers. The CX30 is sold as a "bundle," which includes three hardware products: a personal computer (PC) tower, a 26-inch monitor, and a color laser printer. Each of these products is made in a separate manufacturing division of Magic Systems and can be purchased individually as well as in a bundle. Magic Systems sells roughly equal quantities of the three products. The individual selling prices and per unit costs are as follows:

1. Allocate the revenue from the computer bundle purchase to each of the hardware products using the stand-alone method based on the individual selling price per unit.

2. Allocate the revenue from the computer bundle purchase to each of the hardware products using the stand-alone method based on cost per unit.

3. Allocate the revenue from the computer bundle purchase to each of the hardware products using the stand-alone method based on physical units (that is, the number of individual units of product sold per bundle).

4. Which basis of allocation makes the most sense in this situation? Explain your answer.