Max's Movie Store Encounters Revenue-Allocation Decisions with Its Bundled Product

question 143

Essay

Max's Movie Store encounters revenue-allocation decisions with its bundled product sales.Here,two or more of the movie videos are sold as a single package.Managers at Max's 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:
$$\begin{array}{l}\begin{array} { | l | c | c | } \hline & \begin{array} { c } \text { Stand-Alone } \\\text { Selling Price, }\end{array} & \text { Cost } \\\hline \text { New Releases } & \$ 15 & \$ 2.00 \\\hline \text { Older Releases } & \$ 10 & \$ 1.50 \\\hline \text { Classics } & \$ 8 & \$ 1.25 \\\hline\end{array}\\\\\begin{array} { | l | c | } \hline { \text { Package } } & \text { Packaged Price } \\\hline \text { New \& Older } & \$ 20 \\\hline \text { New \& Classics } & \$ 17 \\\hline \text { All three } & \$ 25 \\\hline\end{array}\end{array}$$ Required:
a.With selling prices as the weights,allocate the $25 packaged price of "All Three" to the three videos using the stand-alone revenue-allocation method.
b.Allocate the $25 packaged price of "All Three" to the three types of videos using the incremental revenue-allocation method.Assume New Releases is the primary product,followed by Older Releases,and then Classics.