Question 1

________ ranks the individual products in a bundle and then uses this ranking to allocate the bundled revenues to these individual products.

Accepted Answer

The incremental revenue-allocation method ranks the individual products in a bundle and then uses this ranking to allocate the bundled revenues to these individual products. It is based on the incremental revenue generated by adding a product to a bundle compared to the revenue generated by selling the product separately. This method is commonly used in industries such as software and media where bundles of products are sold together.

Question 2

The first-ranked product is termed the incremental product in the incremental revenue-allocation method.

Accepted Answer

False

Question 3

________ uses product-specific information pertaining to products in the bundle to determine the weights used to allocate the bundled revenues to those individual products.

Accepted Answer

A

Question 4

Revenue allocation occurs where revenues can be identified with an individual product (service, customer, and so on) in an economically feasible (cost-effective) way.

Accepted Answer

The answer of Revenue allocation occurs where revenues can be...

Question 5

Which of the following statements is true?

Accepted Answer

The two main classes of revenue allocation methods are the stand-alone method and the incremental method.

Question 6

The incremental revenue-allocation method uses product-specific information pertaining to products in the bundle to determine the weights used to allocate the bundled revenues to those individual products.

Accepted Answer

The answer of The incremental revenue-allocation method uses product-specific information...

Question 7

The stand-alone revenue allocation method pertains to products that cannot be bundled together.

Accepted Answer

The answer of The stand-alone revenue allocation method pertains to...

Question 8

Revenue allocation is required to determine the profitability of individual items within a bundled product.

Accepted Answer

Revenue allocation is the process of dividing and assigning the total revenue generated by a product or service to its individual components or parts. This is necessary to determine the profitability of each component and make informed business decisions. In case of bundled products, revenue allocation helps in identifying the revenue contribution of each product within the bundle.

Question 9

________ is a package of two or more products or services, sold for a single price, where the individual components of the package may also be sold as separate items, each with their own stand-alone price.

Accepted Answer

A bundled product is a package of two or more products or services that are sold together for a single price. The individual components of the bundle may also be sold separately, each with their own stand-alone price. Bundling is often used as a pricing strategy to increase sales and revenue by offering customers a discount for buying a package deal instead of buying each item individually.

Question 10

Under the incremental revenue-allocation method, there is an incentive to be the first-ranked user.

Accepted Answer

Under the incremental revenue-allocation method, the first-ranked user receives a larger share of revenue than the lower-ranked users, creating an incentive to strive for the top rank.

Question 11

A bundled product is a package of two or more products or services, sold for a single price, where the individual components of the bundle may also be sold as separate items, each with their own stand-alone prices.

Accepted Answer

This statement accurately describes what a bundled product is.

Question 12

The stand-alone revenue allocation method is a weighted average method.

Accepted Answer

The stand-alone revenue allocation method calculates a weighted average of the selling prices of comparable products or services to determine the revenue allocated to the product or service being evaluated. Therefore, the statement is true.

Question 13

An example of a bundled product is when a resort hotel charges a single price for lodging, food, and recreational activities.

Accepted Answer

A bundled product is when multiple products or services are sold together as a package deal for a single price. The example of a resort hotel charging a single price for lodging, food, and recreational activities is an example of a bundled product.

Question 14

The stand-alone method may use selling price or unit costs to allocate revenues.

Accepted Answer

The stand-alone method can use either selling price or unit costs to allocate revenues to the various components of a bundled package.

Question 15

It is most appropriate to base revenue allocation on the number of physical units when individual products in the bundle are of unequal value.

Accepted Answer

The answer of It is most appropriate to base revenue...

Question 16

________ occurs where revenues, related but not traceable to individual products (service, customer, and so on), are assigned to those individual products.

Accepted Answer

Revenue allocation is the process of assigning revenues that are related but not traceable to individual products to those individual products. This is typically done using some form of cost allocation method, such as allocating the revenues based on the relative costs of each product or based on some other predetermined allocation factor.

Question 17

Which of the following statements is true?

Accepted Answer

Revenue tracing is more accurate because it directly assigns revenues to products based on identifiable links, whereas revenue allocation uses estimates or formulas.

Question 18

When allocating the revenues between a bundled product offering, there are only two methods which can be used: 1) the stand-alone revenue-method and 2) the incremental revenue-allocation method.

Accepted Answer

The answer of When allocating the revenues between a bundled...

Question 19

Revenue tracing results in a more accurate assignment of revenues to products, than does revenue allocation.

Accepted Answer

Revenue tracing is a more direct method of identifying the source of revenue and assigning it to specific products, compared to revenue allocation which may rely on arbitrary or indirect methods. Therefore, revenue tracing can lead to a more accurate assignment of revenues to products.

Question 20

Use the information below to answer the following question(s).
John's Video Game Outlet encounters revenue-allocation decisions with its bundled product sales. Here, two or more of the video games are sold as a single package. Managers at John's are keenly interested in individual product-profitability figures. Information pertaining to its three bundled products and the stand-alone prices of its individual products is as follows:
  The unit manufacturing costs are $3.60, $4.00, and $5.00 for games A, B, and C, respectively.
-Calculate the allocation of packaged price for Game A in Package 1, using selling prices as the base.

Accepted Answer

To find the allocation of packaged price for Game A in Package 1, we need to use the selling prices of the bundled products. From the given information, we know that Package 1 includes Games A and B, and sells for $40. The stand-alone price for Game A is $20, and the stand-alone price for Game B is $24.

To allocate the price of the bundle between the two games, we can use the relative contribution margin approach. This involves finding the contribution margin for each game (i.e., the selling price minus the unit manufacturing cost), and then dividing the total bundle price based on the ratio of the contribution margins.

The contribution margin for Game A is $16 ($20 - $3.60), and the contribution margin for Game B is $20 ($24 - $4.00). Therefore, the total contribution margin for both games in Package 1 is $36 ($16 + $20).

To allocate the packaged price for Game A, we need to find what proportion of the contribution margin it represents. The contribution margin for Game A is 44.4% of the total contribution margin ($16 / $36), while the contribution margin for Game B is 55.6% ($20 / $36).

Thus, the packaged price allocation for Game A in Package 1 is $17.78 ($40 * 0.444), which rounds up to $20. Therefore, the correct answer is B.

Quiz 16: Revenue and Customer Profitability Analysis

________ ranks the individual products in a bundle and then uses this ranking to allocate the bundled revenues to these individual products.

The first-ranked product is termed the incremental product in the incremental revenue-allocation method.

________ uses product-specific information pertaining to products in the bundle to determine the weights used to allocate the bundled revenues to those individual products.

Revenue allocation occurs where revenues can be identified with an individual product (service, customer, and so on) in an economically feasible (cost-effective) way.

Which of the following statements is true?

The incremental revenue-allocation method uses product-specific information pertaining to products in the bundle to determine the weights used to allocate the bundled revenues to those individual products.

The stand-alone revenue allocation method pertains to products that cannot be bundled together.

Revenue allocation is required to determine the profitability of individual items within a bundled product.

________ is a package of two or more products or services, sold for a single price, where the individual components of the package may also be sold as separate items, each with their own stand-alone price.

Under the incremental revenue-allocation method, there is an incentive to be the first-ranked user.

A bundled product is a package of two or more products or services, sold for a single price, where the individual components of the bundle may also be sold as separate items, each with their own stand-alone prices.

The stand-alone revenue allocation method is a weighted average method.

An example of a bundled product is when a resort hotel charges a single price for lodging, food, and recreational activities.

The stand-alone method may use selling price or unit costs to allocate revenues.

It is most appropriate to base revenue allocation on the number of physical units when individual products in the bundle are of unequal value.

________ occurs where revenues, related but not traceable to individual products (service, customer, and so on) , are assigned to those individual products.

Which of the following statements is true?

When allocating the revenues between a bundled product offering, there are only two methods which can be used: 1) the stand-alone revenue-method and 2) the incremental revenue-allocation method.

Revenue tracing results in a more accurate assignment of revenues to products, than does revenue allocation.