Mahogany Billiards Sells Upscale Pool Tables and Related Supplies

question 41

Essay

Mahogany Billiards sells upscale pool tables and related supplies. It sells a premium package consisting of a pool table imported from Europe, a full set of cues and balls, and on-site installation by its staff. Mahogany determines that each of these components is a performance obligation. Mahogany sells the pool table separately for $3,000 and the set of cues and balls for $1,000. The entire package is sold at $4,500. Mahogany does not offer on-site installation separately, as part of company policy. It also estimates that it incurs about $350 of compensation and other costs per each installation. Other competing vendors sell on-site installation separately for $450, on average. Mahogany typically earns a profit margin of 40% over cost, and its prices are generally 5% lower than those charged by competitors.
Required:
Estimate the stand-alone selling price of the installation service using (a) the adjusted market assessment approach, (b) the expected cost plus margin approach, and (c) the residual approach.

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Definitions:

Patent

A patent is a form of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a certain number of years.

Real Assets

Physical or tangible assets that have value due to their substance and properties, such as land, buildings, and machinery.

Commercial Banks

Financial institutions that offer a wide range of banking services to individuals and businesses, including deposit accounts, loans, and other services.

Efficient Market

A market in which asset prices fully reflect all available information, making it impossible to consistently achieve higher returns.