Orange Inc. offers a discount on an extended warranty on its oPhone when the war

Question

Orange Inc. offers a discount on an extended warranty on its oPhone when the warranty is purchased at the time the oPhone is purchased. The warranty normally has a price of $150, but Orange offers it for $120 when purchased along with an oPhone. Orange anticipates a 75% chance that a customer will purchase the extended warranty along with the oPhone. Assume Orange sells to 1,000 oPhones with the extended warranty discount offer. What is the total stand-alone selling price that Orange would use for the extended warranty discount option for purposes of allocating revenue among the performance obligations in those 1,000 oPhone contracts?

Explanation / Answer

Total stand-alone selling price that use for extended warranty discount option =

1000 * 75% = 750

= 750 * 120 = 90000

=250 *120 = 37500

Total =127500

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