Question

Appliance Center is an experienced home appliance dealer. Appliance Center also offers a number of services for the home appliances that it sells. Assume that Appliance Center sells ovens on a standalone basis. Appliance Center also sells installation services and maintenance services for ovens. However, Appliance Center does not offer installation or maintenance services to customers who buy ovens from other vendors. Pricing for ovens is as follows.
Oven only 803
Oven with installation service 910
Oven with maintenance services 976
Oven with installation and maintenance services 1,040

In each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $173. Additionally, the incremental amount charged by The Center for installation approximates the amount charged by independent third parties. Ovens are sold subject to a general right of return. If a customer purchases an oven with installation and/or maintenance services, in the event The Center does not complete the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds $803. Assume that a customer purchases an oven with both installation and maintenance services for $1,040.

Required:
Indicate the amount of revenues that should be allocated to the oven, the installation, and to the maintenance contract.

Answer 1

Answer:

Oven $1,133

Installation $150

Maintenance contract $244

Explanation:

Calculation to Indicate the amount of revenues that should be allocated to the oven, the installation, and to the maintenance contract.

Oven= $ 803/($910-173)× $1,040

Oven= $ 803/737×$1,040

Oven =$1,133

Installation= ($910-$803)/($910-173)× $1,040

Installation=$107/737×$1,040

Installation=$150

Maintenance contract= $173/($910-173)× $1,040

Maintenance contract= $173/737×$1,040

Maintenance contract=$ 244

Therefore the amount of revenues that should be allocated to the oven, the installation, and to the maintenance contract are :

Oven $1,133

Installation $150

Maintenance contract $ 244