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:

Production

The process of creating, growing, manufacturing, or improving goods and services.

Production Possibility Curve

A graphical representation showing the maximum combination of goods and services that can be produced with a given set of resources and technology.

Comparative Advantage

The aptitude of any individual, corporation, or country for producing a good or offering a service at an opportunity cost that is reduced in comparison to that of the competition.

Specialization

The process of focusing resources on the activities that lead to the greatest efficiency and output in production or services.