Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 6, Problem 6.15E
Approaches for estimating stand-alone selling prices
• LO5–6
(This exercise is a variation of E 5–3.)
Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $1,750 and sells the remote separately for $100, and offers the entire package for $1,900. VP does not sell the installation service separately. VP is aware that other similar vendors charge $150 for the installation service. VP also estimates that it incurs approximately $100 of compensation and other costs for VP staff to provide the installation service. VP typically charges 40% above cost on similar sales.
Required:
1. Estimate the stand-alone selling price of the installation service using the adjusted market assessment approach.
2. Estimate the stand-alone selling price of the installation service using the expected cost plus margin approach.
3. Estimate the stand-alone selling price of the installation service using the residual approach.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Check
Exercise 6-15 (Algo) Approaches for estimating stand-alone selling prices (LO6-6)
Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP
staff. The installation includes programming the remote to have the TV interface with other parts of the customer's home entertainment
system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV
separately for $2,110 and sells the remote separately for $280, and offers the entire package for $2,620. VP does not sell the
installation service separately. VP is aware that other similar vendors charge $330 for the installation service. VP also estimates that it
incurs approximately $280 of compensation and other costs for VP staff to provide the installation service. VP typically charges 40%
above cost on similar sales.
ok
ht
nt
Required:
1. to 3. Calculate the stand-alone selling price of the…
!
Required information
[The following information applies to the questions displayed below.]
UR Safe Systems installs home security systems. Two of its systems, the ICU 100 and the ICU 900, have these
characteristics:
Design Specifications
Video cameras
Video monitors
Motion detectors
Floodlights
Alarms
Wiring
Installation
ICU 100
2
2
1. Current profit margin
2.
Profit margin
Target cost
WEIN
ICU 100
1
%
%
3
3
710 feet
11 hour
1,150 feet
21 hour
The ICU 100 sells for $980 installed, and the ICU 900 sells for $1,690 installed.
Required:
1. What are the current gross profit margin percentages on both systems?
2. UR Safe's management believes that it must drop the price on the ICU 100 to $920 and on the ICU 900 to $1,560 to remain
competitive in the market. Recalculate gross profit margin percentages for both products at these price levels and then compute the
target cost needed for each product to maintain the current gross profit margin percentages.
(For all requirements, round your…
Required Information
[The following information applies to the questions displayed below.]
UR Safe Systems Installs home security systems. Two of its systems, the ICU 100 and the ICU 900, have these
characteristics:
Design Specifications
Video cameras
Video monitors
Motion detectors
Floodlights
Alarms
Wiring
Installation
1,050 feet
21 hour
The ICU 100 sells for $860 Installed, and the ICU 900 sells for $1,570 Installed.
1. Current profit margin
2.
ICU 100
2
2
3
1
5
650 feet
11 hour
Required:
1. What are the current gross profit margin percentages on both systems?
2. UR Safe's management believes that it must drop the price on the ICU 100 to $800 and on the ICU 900 to $1,440 to remain
competitive in the market. Recalculate gross profit margin percentages for both products at these price levels and then compute the
target cost needed for each product to maintain the current gross profit margin percentages.
Profit margin
Target cost
(For all requirements, round your percentage answers to…
Chapter 6 Solutions
Intermediate Accounting, 10 Ed
Ch. 6 - What are the five key steps a company follows to...Ch. 6 - What indicators suggest that a performance...Ch. 6 - What criteria determine whether a company can...Ch. 6 - We recognize service revenue either at one point...Ch. 6 - What characteristics make a good or service a...Ch. 6 - Prob. 6.6QCh. 6 - What must a contract include for the contract to...Ch. 6 - How might the definition of probable affect...Ch. 6 - When a contract includes an option to buy...Ch. 6 - Prob. 6.10Q
Ch. 6 - Prob. 6.11QCh. 6 - Is a customers right to return merchandise a...Ch. 6 - Prob. 6.13QCh. 6 - Under what circumstances should sellers consider...Ch. 6 - When should a seller view a payment to its...Ch. 6 - What are three methods for estimating stand-alone...Ch. 6 - When is revenue recognized with respect to...Ch. 6 - In a franchise arrangement, what are a franchisors...Ch. 6 - When does a company typically recognize revenue...Ch. 6 - Prob. 6.20QCh. 6 - Prob. 6.21QCh. 6 - Prob. 6.22QCh. 6 - Must bad debt expense be reported on its own line...Ch. 6 - Explain the difference between contract assets,...Ch. 6 - Explain how to account for revenue on a long-term...Ch. 6 - Prob. 6.26QCh. 6 - Prob. 6.27QCh. 6 - Timing of revenue recognition LO53 Estate...Ch. 6 - Allocating the transaction price LO54 Sarjit...Ch. 6 - Existence of a contract LO5-5 Tulane Tires wrote...Ch. 6 - Prob. 6.6BECh. 6 - Prob. 6.7BECh. 6 - Performance obligations; warranties LO55 Vroom...Ch. 6 - Prob. 6.9BECh. 6 - Prob. 6.10BECh. 6 - Variable consideration LO56 Leo Consulting enters...Ch. 6 - Prob. 6.16BECh. 6 - Prob. 6.17BECh. 6 - Prob. 6.18BECh. 6 - Prob. 6.19BECh. 6 - Prob. 6.20BECh. 6 - Prob. 6.21BECh. 6 - Estimating stand-alone selling prices: expected...Ch. 6 - Estimating stand-alone selling prices; residual...Ch. 6 - Prob. 6.24BECh. 6 - Prob. 6.25BECh. 6 - Contract assets and contract liabilities LO58...Ch. 6 - Long-term contract; revenue recognition over time;...Ch. 6 - Prob. 6.34BECh. 6 - Long-term contract; revenue recognition upon...Ch. 6 - Long-term contract; revenue recognition; loss on...Ch. 6 - Prob. 6.1ECh. 6 - Allocating transaction price LO54 Video Planet...Ch. 6 - Prob. 6.4ECh. 6 - Prob. 6.6ECh. 6 - Prob. 6.7ECh. 6 - Prob. 6.9ECh. 6 - Variable considerationmost likely amount; change...Ch. 6 - Variable considerationexpected value; change in...Ch. 6 - Prob. 6.12ECh. 6 - Prob. 6.13ECh. 6 - Prob. 6.14ECh. 6 - Approaches for estimating stand-alone selling...Ch. 6 - FASB codification research LO56, LO57 Access the...Ch. 6 - FASB codification research LO58 Access the FASB...Ch. 6 - Long-term contract; revenue recognition over time;...Ch. 6 - Prob. 6.1PCh. 6 - Prob. 6.2PCh. 6 - Prob. 6.3PCh. 6 - Prob. 6.5PCh. 6 - Variable consideration; change of estimate LO53,...Ch. 6 - Prob. 6.7PCh. 6 - Prob. 6.8PCh. 6 - Prob. 6.10PCh. 6 - Long-term contract; revenue recognition over time...Ch. 6 - Prob. 6.1DMPCh. 6 - Judgment Case 52 Satisfaction of performance...Ch. 6 - Judgment Case 53 Satisfaction of performance...Ch. 6 - Prob. 6.5DMPCh. 6 - Prob. 6.7DMPCh. 6 - Prob. 6.9DMPCh. 6 - Prob. 6.10DMPCh. 6 - Prob. 6.12DMPCh. 6 - Prob. 6.13DMPCh. 6 - Prob. 6.14DMPCh. 6 - Prob. 6.15DMPCh. 6 - Prob. 1CCTC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- ! Required information [The following information applies to the questions displayed below.] UR Safe Systems installs home security systems. Two of its systems, the ICU 100 and the ICU 900, have these characteristics: 1. 2. Design Specifications Video cameras Video monitors Motion detectors Floodlights Alarms Wiring Installation ICU 100 2 2 4 Current profit margin Profit margin Target cost 2 2 1,090 feet 25 hour The ICU 100 sells for $820 installed, and the ICU 900 sells for $1,530 installed. ICU 100 690 feet 15 hour Required: 1. What are the current gross profit margin percentages on both systems? 2. UR Safe's management believes that it must drop the price on the ICU 100 to $760 and on the ICU 900 to $1,400 to remain competitive in the market. Recalculate gross profit margin percentages for both products at these price levels and then compute the target cost needed for each product to maintain the current gross profit margin percentages. % % (For all requirements, round your…arrow_forward(Q.7) Data 1-2-3 is a top-selling electronic spreadsheet product Data is about to release version 5.0. 11 divides its customers into two groups: new customers and upgrade customers (those who previously purchased Data 1-2-3, 4.0 or earlier versions). Although the same physical product is provided to each customer group, sizable differences exist in selling prices and variable marketing costs: New Customers $275 Selling price Variable costs Manufacturing Marketing Contribution margin $35 65 100 $175 Upgrade Customers $100 $35 15 50 $ 50 The fixed costs of Data 1-2-3, 5.0 are $15,000,000. The planned sales mix in units is 60% new customers and 40% upgrade customers. Questions: 1. Calculate the Data 1-2-3, 5.0 breakeven point in units (number of bundles, new customers, upgrade customers) assuming that the planned 60% 40% sales mix is attained? 2. If the sales mix is altained, what is the operating income when 220,000 total units are sold? 9arrow_forwardExercise 5-3 (Algo) Compute Activity Rates [LO5-3] Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below: Activity Cost Pool Caring for lawn Caring for garden beds-low maintenance Caring for garden beds-high maintenance Travel to jobs Customer billing and service Activity Cost Pool Caring for lawn Caring for garden beds-low maintenance Caring for garden beds-high maintenance Travel to jobs Customer billing and service The company already has…arrow_forward
- oncL pe 48A D-Google elearn.squ.edu.om/mo stem (Academic) Company XYZ sells two products: AAA and BBB. Product BBB has a lower selling price but higher contribution margin compared to product AAA. Assume that the factory has fixed production capacity. If Company XYZ decided to produce and sell more units of product BBB compared to product AAA, which one of the following is likely to happen? Select one: O a. Total profit will increase O b. None of the given answers Oc Total sales will increase O d. Total profits will decrease O.e. Total profits will remain the samearrow_forwardZapo 1-2-3 is a top-selling electronic spreadsheet product. Zapo is about to release version 5.0. It divides its customers into two groups: new customers and upgrade customers (those who previously purchased Zapo 1-2-3, 4.0 or earlier versions). Although the same physical product is provided to each customer group, sizable differences exist in selling prices and variable marketing costs: E (Click the icon to view the price and cost information.) The fixed costs of Zapo 1-2-3 5.0 are $13,500,000. The planned sales mix in units is 60% new customers and 40% upgrade customers. Read the requirements. Requirement 1. What is the Zapo 1-2-3 5.0 breakeven point in units, assuming that the planned 60% / 40% sales mix is attained? Begin by determining the sales mix. For every bundle, units are sold to new customers, and units are sold to customer who bought upgrades. Data Table New Customers Upgrade Customers Selling price $ 225 $ 120 Variable costs Manufacturing $ 20 $ 20 60 80 25 Marketing $…arrow_forwardExercise 6-3 (Algo) Allocating transaction price [LO6-4] Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer's home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $1,575, sells the remote separately for $210, and offers the installation service separately for $315. The entire package sells for $2,000. Required: How much revenue would be allocated to the TV, the remote, and the installation service? Note: Do not round intermediate calculations. Item Description Allocated Revenue TV Remote Installation Total revenue 0arrow_forward
- Exercise 6-3 (Algo) Allocating transaction price [LO6-4] Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer's home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $2,000, sells the remote separately for $125, and offers the installation service separately for $375. The entire package sells for $2,400. Required: How much revenue would be allocated to the TV, the remote, and the installation service? Note: Do not round intermediate calculations. Item Description TV Remote Installation Total revenue Allocated Revenuearrow_forwardQuestion 2 Suppose Cyberdyne Systems creates a Professional version of its machine learning software. By disabling some of the features in the Professional version it can create a Home version. Both versions have zero marginal cost. Cyberdyne Systems faces two customer segments each interested in buying at most one version. The RPs of each segments for each version are displayed below. Professional Version Home Version Segment Size Business Home Buyers $100 $20 $ 0 $5 20 80 Each customer will choose the software that gives her the highest surplus. 1. If Cyberdyne Systems offers only the Professional version, what price should it charge in order to maximize revenue? 2. If it offers both versions, what prices should it set to maximize revenue. 3. Now suppose that instead of valuing the Home version at $0, each Business buyer values the Home version at $80. Keep all other RPs the same as before. Show that at the prices you chose in (2), Business buyers would actually prefer to buy the…arrow_forwardExercise 6-3 (Algo) Allocating transaction price [LO6-4] Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer's home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $1,575, sells the remote separately for $210, and offers the installation service separately for $315. The entire package sells for $2,000. Required: How much revenue would be allocated to the TV, the remote, and the installation service? (Do not round intermediate calculations.) Item Description TV Remote Installation Total revenue $ Allocated Revenue 0arrow_forward
- ab. ock esc ~ Microhard produces tablets, laptops and televisions. Microhard typically sells 1,000 tablets a year. The tablet information is as follows: Selling price per unit Direct material cost per unit Direct labor cost per unit Total unavoidable allocated overhead How much would Operating Income decrease if Microhard were to eliminate the tablets? DO NOT INCLUDE PARENTHESES OR NEGATIVE SIGNS IN YOUR ANSWER. Click Save and Submit to save and submit. Click Save All Answers to save all answers. ! 1 Q A @ 2 W S $60 $30 $10 $48,000 #M 3 E $ 4 D R % от оро 5 F MacBook Pro < 6 T G & of r 7 Y H * 00 つarrow_forwardRequired information Exercise 5A-2 (Algo) Least-Squares Regression [LO5-11] [The following information applies to the questions displayed below.] Bargain Rental Car offers rental cars in an off-airport location near a major tourist destination in California. Management would like to better understand the variable and fixed portions of its car washing costs. The company operates its own car wash facility in which each rental car that is returned is thoroughly cleaned before being released for rental to another. customer. Management believes that the variable portion of its car washing costs relates to the number of rental returns. Accordingly, the following data have been compiled: Month January February March April May June July August September October November December Rental Returns 2,400 2,500 2,800 3,100 Fixed cost per month Variable cost per rental return i 3,700 5,100 5,600 5,600 4,800 4,100. 2,200 3,000. Car Wash Costs $ 11,400 $ 13,300 $ 12,200 $ 14,900 $ 16,600 $ 24,100 $…arrow_forwardExercise 10-38 & 10-39 (Algo) (LO 10-3, 4) [The following information applies to the questions displayed below.] Watko Entertainment Systems (WES) buys audio and video components for assembling home entertainment systems from two suppliers, Bacon Electronics and Hessel Audio and Video. The components are delivered in cartons. If the cartons are delivered late, the installation for the customer is delayed. Delayed installations lead to contractual penalties that call for WES to reimburse a portion of the purchase price to the customer. During the past quarter, the purchasing and delivery data for the two suppliers showed the following: Total purchases (cartons) Average purchase price (per carton) Number of deliveries Percentage of cartons delivered late. Bacon 5,000 Hessel Total 3,000 8,000 $ 164 $ 180 40 20 $ 170 60 30% 15% 25% The Accounting Department recorded $237,900 as the cost of late deliveries to customers. Exercise 10-39 (Algo) Activity-Based Costing of Suppliers (LO 10-3, 4)…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Pkg Acc Infor Systems MS VISIO CDFinanceISBN:9781133935940Author:Ulric J. GelinasPublisher:CENGAGE L
Pkg Acc Infor Systems MS VISIO CD
Finance
ISBN:9781133935940
Author:Ulric J. Gelinas
Publisher:CENGAGE L
Pricing Decisions; Author: Rutgers Accounting Web;https://www.youtube.com/watch?v=rQHbIVEAOvM;License: Standard Youtube License