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

question 26

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:
$$\begin{array}{l}\begin{array} { | l | c | c | } \hline & \begin{array} { c } \text { Stand-Alone } \\\text { Selling Price, }\end{array} & \text { Cost } \\\hline \begin{array} { l } \text { Word Processing } \\\text { (WP) }\end{array} & \$ 125 & \$ 18 \\\hline \text { Spreadsheet (SS) } & \$ 150 & \$ 20 \\\hline \begin{array} { l } \text { Accounting Software } \\\text { (AS) }\end{array} & \$ 225 & \$ 25 \\\hline\end{array}\\\\\begin{array} { | c | c | } \hline \text { Package } & \text { Packaged Price } \\\hline \text { WP \& SS } & \$ 220 \\\hline \text { WP \& AS } & \$ 280 \\\hline \text { All three } & \$ 380 \\\hline\end{array}\end{array}$$ Required:
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.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 Spreadsheet,and then Accounting Software.

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Definitions:

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