Software for You Encounters Revenue-Allocation Decisions with Its Bundled Product

question 85

Essay

Software For You encounters revenue-allocation decisions with its bundled product sales.Here,two or more units of the software are sold as a single package.Managers at Software For You are keenly interested in individual product-profitability figures.Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows:
$$\begin{array}{l}\begin{array} { | c | c | c | } \hline & \begin{array} { c } \text { Stand-alone } \\\text { Selling Price }\end{array} & \text { Cost } \\\hline \begin{array} { c } \text { Word Processing } \\\text { (WP) }\end{array} & \$ 125 & \$ 18 \\\hline \text { Spreadsheet (SS) } & \$ 150 & \$ 20 \\\hline \begin{array} { c } \text { Accounting Software } \\\text { (AS) }\end{array} & \$ 225 & \$ 25 \\\hline\end{array}\begin{array} { | c | c | } \hline \text { Package } & \text { Packaged Price } \\\\\hline \text { WP \& SS } & \$ 220 \\\\\hline \text { WP \& } A S & \$ 280 \\\hline \text { All three } & \$ 380 \\\\\hline\end{array}\end{array}$$
Required:
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a. Using the stand-alone revenue-allocation method, allocate the $\$ 380$ packaged price of "All Three' to the three software products:
1. with selling prices as the weights
2. with individual product costs as the weights
3. based on physical units

b. $\quad$ Allocate the $\$ 380$ packaged price of 'All Three' to the three software products using the incremental revenue-allocation method. Assume Word Processing is the primary product, followed by Spread sheet, and then Accounting Software.
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Definitions:

Quarterly Payments

Payments that are made four times a year, often on a financial obligation like a loan or lease.

Withdraw

Withdrawing money from a bank account or an investment.

Monthly Compounded

Interest that is calculated on the principal and previously earned interest once every month.

Nominal Rate

The advertised or stated rate of interest, not including the effects of inflation or compounding.