2 EP8-13 (similar to) Question Help Buckeye Industries enters into a contract wi

Question

2 EP8-13 (similar to) Question Help Buckeye Industries enters into a contract with a customer to sell three products for a total transaction price of $870,000. Each product is appropriately classified as a separate performance obligation. Buckeye Industries only sells products A and B on an individual basis so it must estimate the standalone selling price for product C Information related to these three products is provided in the following table. (Click the icon to view the informaton.) How should Buckeye Industries allocate the transaction price to the three products under each of the following three approaches: (a) the adjusted market assessment approach, (b) the expected-cost-plus-a-margin approach, and (c) the residual approach? 271,875 435.000 41.375220 543750 S 870,000 226,200 Total (c) Finally, calculate the allocated transaction price for the three products using the residual approach. (Use a minus sign or parentheses for any numbers to be Standalone Selling Price Information Transaction Price Market Product Selling Price Prices Cost Enter any number in the edit fields and then click A S 176,000 $143,000S 130,500 307,000 311,000 200,000 271,875 141.375 All parts showing Not available

Explanation / Answer

b)

Given a total cost of $543750 and a total transaction price of $870000, an appropriate margin would be 60% (870000 / 543750). thus, to get the allocated transaction price for each product, we multiply the forecased cost of each product by 1.60.

C)

Using the residual approach, the standalone selling prices that are available for products A and B are reduced from the total transaction price to arrive at the standalone selling price for product C, which is $387000

Adjusted Market assessment approach Industries should allocate on a relative basis as follows: Product Market competitor prices Percentage of total Allocated transaction price A 143000 21.87% 190269 B 311000 47.55% 413685 C 200000 30.58% 266046 Total 654000 100% 870000

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