nework Prob d, or Drop Classes omework Prablems Creative Computing sells a tabet

ID: 2435998 • Letter: N

Question

nework Prob d, or Drop Classes omework Prablems Creative Computing sells a tabet computer called the Protan The $740 sales price of a Protab Package nades the ??? wig - One Pratab computer - A 6-morth mited warranty. This warranty guarantees that Creative wa cover any costs that arse due to repairs or replacements assoclated with defective products for up to st months A coupon to purchase a Creat ve Probo e-book reader for S45 price of $750, t s expected that 20% are cscout a te tr at represents a 40% decourt tom the regur Poto i Wel be utilized - A coupon to purchase a one-year extended warranty for $65 Customers can buy the extended warranty tor $90 at other tmes i they do not use the S65 coupon. Creat ve estimates that 40%of customers wes purchase an extended warranty Creative does not sell the Protab without the inited warranty, option to purchase a Probook, and the extended warranty but estimates that i it ala so, a Protab alone would sell for $720. option to purchase an Requiredt 1 &2 indicate below whether each item is a separate pertormance obiigation and allocate the transaction Packages to the separate performance obiligations in the contract 3. Prepare a journai entry to record saies of 100,000 Protab Packages ignore any sakes of extended warrantes price of 100,000 Protab Compliete this question by entering your answers in the tabs below Rea 1 and2 Indicate heiow whether each item is separate performance obiligation and alocate the transaction price of 1oe,000 Protab ckages to the separate performance obiigations in the contract. Stand Alone Priceatend Alona Prios Pratsb tsbet Total sand sione pce

Explanation / Answer

Sale price of protab : $740

Total Sale value: 100000 protab X $740= $74 million

100000 protab*0.25= 25000 protab

Value: 25000 X $(740*.80)= $14.8 million (It is assumed that there is profit margin of 20%on sale. So obligation will valued as the cost to the seller so margin is excluded)

2. Creative probook obligation: As 20% of discount coupons will be utilized, so 100000 protab X 20%= 20000 cases leading to value of $7.2 million. ($450*0.80*20000 as It is assumed that there is profit margin of 20%on sale of probook . So obligation will valued as the cost to the seller so margin is excluded)

3. Value of obligation of one year extended warranty= (100000 protab X 40% X ($740*0.80) X 0.25 being probability of defective product) minus (100000 protab X 40%X $65) = $3.32 million (Assuming no customers excercised option of $90). It is assumed that there is profit margin of 20%on sale of protab. So obligation will valued as the cost to the seller so margin is excluded)

Description

Obligation

Stand Alone price

% to total price

Protab (balancing figure)

$ 48.68 million

$486.80

65.78%

6-month warranty

$ 14.8 million

$148.00

20%

Option to buy probook

$ 7.2 million

$72.00

9.73%

Option to buy extended warranty

$3.32 million

$33.20

4.49%

Total Price

$ 74 million

$740

100%

The lower the probability of defective product coming for replacement, more will be the share of protab stand alone price in total price.