Kramer Iron Works signs a contract to provide three different products to a cust
ID: 2600063 • Letter: K
Question
Kramer Iron Works signs a contract to provide three different products to a customer for a total transaction price of $325,000. Each product represents a separate performance obligation. Kramer only sells two of the three products on an individual basis, so they must estimate the standalone selling price for the third product. The information about these three products is provided in the following table:
Product
Standalone Selling Price
Market Competition Price
A1
$87,500
$66,500
$60,000
A2
150,000
156,000
125,000
A3
Not Available
100,000
65,000
Total
$322,500
$250,000
Rounding any percentages to four decimal places, allocate the transaction price to each performance obligation using:
Weighted average of market competition price
Weighted average of forecasted cost-plus margin
Residual value
Product
Standalone Selling Price
Market Competition Price
Forecasted Costplus MarginA1
$87,500
$66,500
$60,000
A2
150,000
156,000
125,000
A3
Not Available
100,000
65,000
Total
$322,500
$250,000
Explanation / Answer
* ($325000-$87500-$150000) =$87500
Allocation of the transaction price 1) Weighted average of market competition price Product Market Competitor Price Percentage of Total Allocated Transaction Price A-1 $66,500 20.62% $67,016 A-2 156,000 48.37% $157,209 A-3 100,000 31.01% $100,775 Total $322,500 100% $325,000 2) Weighted average of forecasted cost-plus margin Product Forecasted Cost Percentage of Total Allocated Transaction Price A-1 $60,000 24.00% $78,000 A-2 125,000 50.00% $162,500 A-3 65,000 26.00% $84,500 Total $250,000 100% $325,000 3) Residual value Product Standalone Product Price Transaction Price $325,000 A-1 $ 87,500 A-2 $ 150,000 A-3* $ 87,500Related Questions
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