Question 1

When allocating the revenues between a bundled product offering,management judgement can be used in issuing revenue-allocation weights.

Accepted Answer

Management judgement can be used in determining the appropriate revenue-allocation weights for a bundled offering, as the allocation may be influenced by factors such as the relative fair value of the different components, the pricing strategy, and customer preferences. However, it is important that the allocation is consistent with the accounting principles for revenue recognition, such as the relative standalone selling price method.

Question 2

Give examples of bundled products for each of the following industries:
a.Resort hotel
b.Bank
c.Restaurant
d.Computer store
e.Super markets
f.Personal care products manufacturer

Accepted Answer

The answer of Give examples of bundled products for each...

Question 3

Software For You encounters revenue-allocation decisions with its bundled product sales.Here,two or more units of the software are sold as a single package.Managers at Software For You are keenly interested in individual product-profitability figures.Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows:
 $$\begin{array}{l}
\begin{array} { | l | c | c | } 
\hline & \begin{array} { c } 
\text { Stand-Alone } \
\text { Selling Price, }
\end{array} & \text { Cost } \
\hline \begin{array} { l } 
\text { Word Processing } \
\text { (WP) }
\end{array} & \$ 125 & \$ 18 \
\hline \text { Spreadsheet (SS) } & \$ 150 & \$ 20 \
\hline \begin{array} { l } 
\text { Accounting Software } \
\text { (AS) }
\end{array} & \$ 225 & \$ 25 \
\hline
\end{array}\\
\begin{array} { | c | c | } 
\hline \text { Package } & \text { Packaged Price } \
\hline \text { WP \& SS } & \$ 220 \
\hline \text { WP \& AS } & \$ 280 \
\hline \text { All three } & \$ 380 \
\hline
\end{array}
\end{array}$$ Required:
a.Using the stand-alone revenue-allocation method,allocate the $380 packaged price of "All Three" to the three software products
1.with selling prices as the weights.
2.with individual product costs as the weights.
3.based on physical units.
b.Allocate the $380 packaged price of "All Three" to the three software products using the incremental revenue-allocation method.Assume Word Processing is the primary product,followed by Spreadsheet,and then Accounting Software.

Accepted Answer

The answer of Software For You encounters revenue-allocation decisions with...

Question 4

Describe and discuss the two methods of allocating revenues of a bundled package to the individual products in that package.Describe any special problems associated with the method.

Accepted Answer

The answer of Describe and discuss the two methods of...

Question 5

The stand-alone method uses the product in the bundle with the most sale and then uses this ranking to allocate bundled revenues to individual products.

Accepted Answer

The incremental-revenue allocation method uses the product in the bundle with the most sale and then uses this ranking to allocate bundled revenues to individual products.

Question 6

The selling prices method under stand-alone revenue-allocation method is best because the weights explicitly consider the prices customers are willing to pay for the individual products

Accepted Answer

The selling prices method under stand-alone revenue-allocation method takes into consideration the prices customers are willing to pay for individual products, which makes it an accurate method of revenue recognition. Hence, the statement is true.

Question 7

Max's Movie Store encounters revenue-allocation decisions with its bundled product sales.Here,two or more of the movie videos are sold as a single package.Managers at Max's are keenly interested in individual product-profitability figures.Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows:
 $$\begin{array}{l}
\begin{array} { | l | c | c | } 
\hline & \begin{array} { c } 
\text { Stand-Alone } \
\text { Selling Price, }
\end{array} & \text { Cost } \
\hline \text { New Releases } & \$ 15 & \$ 2.00 \
\hline \text { Older Releases } & \$ 10 & \$ 1.50 \
\hline \text { Classics } & \$ 8 & \$ 1.25 \
\hline
\end{array}\\
\begin{array} { | l | c | } 
\hline  { \text { Package } } & \text { Packaged Price } \
\hline \text { New \& Older } & \$ 20 \
\hline \text { New \& Classics } & \$ 17 \
\hline \text { All three } & \$ 25 \
\hline
\end{array}
\end{array}$$ Required:
a.With selling prices as the weights,allocate the $25 packaged price of "All Three" to the three videos using the stand-alone revenue-allocation method.
b.Allocate the $25 packaged price of "All Three" to the three types of videos using the incremental revenue-allocation method.Assume New Releases is the primary product,followed by Older Releases,and then Classics.

Accepted Answer

The answer of Max's Movie Store encounters revenue-allocation decisions with...

Question 8

Revenue allocation based on the number of physical units is only appropriate when individual products in the bundle are of equal value.

Accepted Answer

The value of the products do not need to be of equal value. After the revenue allocation is calculated, the revenue allocation will then be equal for each product in the bundle.

Question 9

The price of a bundled product is typically more than the sum of the prices of the individual products sold separately.

Accepted Answer

The price of a bundled product is typically less than the sum of the prices of the individual products sold separately.

Question 10

Explain three approaches to determining weights for the the stand-alone revenue-allocation.Which method do managers prefer?

Accepted Answer

The answer of Explain three approaches to determining weights for...

Quiz 15: Allocation of Support-Department Costs, common Costs, and Revenues