Allocation of Variable Consideration. Green-Up Inc contracts with a building manager to provide goods and services to enhance energy efficiency It offers consulting services, including recommending ways to increase energy efficiency and monitor performance It also provides items such as thermostats and automatic light switches as part of the contract Green-Up charges 60% of the reduction in energy usage during the first year as a consulting fee Green-Up determines that the consulting services compose one performance obligation and the items provided are another performance obligation The estimated standalone selling prices are $180,000 for the consulting services and $100,000 for the items to increase energy efficiency The stated price in the contract for the items provided is a fixed payment of $100,000 The price stated for the consulting fees is 60% of the customer s reduction in future energy costs Green-Up estimates the variable consideration for the consulting services to be $180,000 What amount of the transaction price should Green-Up allocate to each performance obligation?
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Intermediate Accounting
- A company uses charging rates to allocate service department costs to the using departments. The accountant compiled the following information on one of the service departments: If Department K plans to use 1,350 hours of the service departments service in the coming year, how much of the service departments cost is allocated to Department K? a. 3,375 b. 27,300 c. 26,325 d. 23,950arrow_forwardTarget costs, effect of process-design changes on service costs. Solar Energy Systems (SES) sells solar heating systems in residential areas of eastern Pennsylvania. A successful sale results in the homeowner purchasing a solar heating system and obtaining rebates, tax credits, and financing for which SES completes all the paperwork. The company has identified three major activities that drive the cost of selling heating systems: identifying new contacts (varies with the number of new contacts); traveling to and between appointments (varies with the number of miles driven); and preparing and filing rebates and tax forms (varies with the number of solar systems sold). Actual costs for each of these activities in 2016 and 2017 are:arrow_forwardAt the end of 20x5, Bing Pharmaceuticals began to implement an environmental quality management program. As a first step, it identified the following costs in its accounting records as environmentally related for the calendar year just ended: Required: 1. Prepare an environmental cost report by category. Assume that total operating costs are 150,000,000. 2. Use a pie chart to illustrate the relative distribution percentages for each environmental cost category. Comment on what this distribution communicates to a manager.arrow_forward
- A Project Manager (PM) wants to price out the cost for her project for the use of a piece of equipment. The company knows the piece of equipment is used by all projects combined an average of 31 hours per week. The company the PM works for actualy rents the piece of equipment from a 3rd party provider at a cost of $32000 per month and spends $19000 per year on maintenance (the 3rd party provider doesn't pay for it). WWhat would be the ABC cost for the use of the piece of equipment for the PM's project if the PM needs the equipment for 50 hours? Use 5 significant figures in your calculations. Your Answer:arrow_forward9. Fabulous Fabricators needs to decide how to allocate space in its production facility this year. It is considering the following contracts: a. What are the profitability indexes of the projects? b. What should Fabulouo Fabricators do? 1. a. What are the profitability indexes of the projects? The profitability index for contract Ais (Round to two decimal places.) The profitability index for contract B is (Round to two decimal places.) The profitability index for contract C is (Round to two decimal places.) b. What should Fabulous Fabricators do? (Select the best choice below) O A. Since the profitability index for C is the largest, it should choose C. O B. Since it has the capacity to do both B and C and NPVe +NPVC is greater than NPVA. it should do both B and C. OC. Since the NPV of A is the largest, it should choose A O D. It should take the two projects with the highest profitability indexes: C and A 1. Data Table (Click on the following icon o in order to copy its contents into a…arrow_forwardCaramel Spa Company sells prefabricated pools that cost $80,000 to customers for $144,000. The sales price includes an installation fee, which is valued at $20,000. The fair value of the pool is $128,000. The installation is considered a seperate performance obligation and is expected to take 3 months to complete. The transaction price allocated to the pool and the installation isarrow_forward
- Required : i) List the alternatives facing Zee Manufacturing with respect to production of component S6 . ii) List the relevant costs for each alternative if Zee decides to purchase the component from Bryan . Predict whether the operating income will increase or decrease and better alternatives . b) Refer to the information for Zee Manufacturing above . Assume that 75 % of Zee Manufacturing's fixed overhead for component S6 would be eliminated if that component were no longer produced . Required : If Zee decides to purchase the component from Bryan , predict whether the operating income will increase or decrease and propose the better alternatives .arrow_forwardBodine Corp. has a contract to deliver cleaning products to the community center. The contract with the aquatic center states that the first 500 gallons of cleaner will cost $16 per gallon. However, the cost will drop to $12 per gallon for all purchases over 500 gallons. Based on its experience, Bodine Corp. estimates that the center will use 800 gallons of chemicals. What transaction price per gallon should Chlorine use for this contract?arrow_forwardMatt Simpson owns and operates Quality Craft Rentals, which offers canoe rentals and shuttle service on the Nantahala River. Customers can rent canoes at one station, enter the river there, and exit at one of two designated locations to catch a shuttle that returns them to their vehicles at the station they entered. Following are the costs involved in providing this service each year: Canoe maintenance Licenses and permits Vehicle leases Station lease Advertising Operating costs Fixed Costs Variable Costs $ 9.50 $ 3,000 3,700 0 6,100 0 7,620 0 6,700 21,700 7.50 7.50 Quality Craft Rentals began business with a $28,000 expenditure for a fleet of 30 canoes. These are expected to last 10 more years, at which time a new fleet must be purchased. Rentals have been stable at about 7,000 per year. Required: Matt is happy with the steady rental average of 7,000 per year. For this number of rentals, what price should he charge per rental for the business to make an annual 16% before-tax return on…arrow_forward
- On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?arrow_forwardThe expected costs for the Maintenance Department of Stazler, Inc., for the coming year include: Fixed costs (salaries, tools): 64,900 per year Variable costs (supplies): 1.35 per maintenance hour Estimated usage by: Actual usage by: Required: 1. Calculate a single charging rate for the Maintenance Department. 2. Use this rate to assign the costs of the Maintenance Department to the user departments based on actual usage. Calculate the total amount charged for maintenance for the year. 3. What if the Assembly Department used 4,000 maintenance hours in the year? How much would have been charged out to the three departments?arrow_forwardSelf-Construction Olson Machine Company manufactures small and large milling machines. Selling prices of these machines range from 35,000 to 200,000. During the 5-month period from August 1, 2019, through December 31, 2019, Olson manufactured a milling machine for its own use. This machine was built as part of the regular production activities. The project required a large amount of time front planning and supervisory personnel, as well as that of some of the companys officers, because it was a more sophisticated type of machine than the regular production models. Throughout the 5-month period, Olson charged all costs directly associated with the construction of the machine to a special account entitled Asset Construction Account. An analysis of the charges to this account as of December 31, 2019, follows: Olson allocates factory overhead to normal production as a percent of direct labor dollars as follows: Olson uses a flat rate of 40% of direct labor dollars to allocate general and administrative overhead. During the machine testing period, a cutter head malfunctioned and did extensive damage to the machine table and one cutter housing. This damage was not anticipated and was the result of an error in the assembly operation. Although no additional raw materials were needed to make the machine operational after the accident, the following labor for rework was required: Olson has included all these labor charges in the asset construction account. In addition, it included in the account the repairs and maintenance charges of 1,340 that it incurred as a result of the malfunction. Required: 1. Compute, consistent with GAAP and common practice, the amount that Olson should capitalize for the milling machine as of December 31, 2019, when it declares the machine operational. 2. Next Level Identify the costs you included in Requirement 1 for which there are acceptable alternative procedures. Describe the alternative procedure(s) in each case.arrow_forward
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