Question

Winchell wrote a contract that involves two performance obligations. Product A has a stand-alone selling price of $50, and product B has a stand-alone selling price of $100. The price for the combined product is $120. How much of the transaction price would be allocated to the performance obligation for delivering product A? Multiple Choice $50. $40. $30. $20.

Answer 1

Answer:

$40

Explanation:

Stand alone price of product A = $50

Stand alone price of product B = $100

Price of the combined product = $120

Now,

The allocation ration for the product A and B = $\frac{\textup{Stand alone price of product A}}{\textup{Stand alone price of product B}}$

or

The allocation ration , product A : B = $\frac{\ \textup{50}}{\ \textup{100}}$

or

The allocation ration, product A : B = 5 : 10

therefore,

Allocated to the performance obligation for delivering product A

= $120 × $\frac{5}{10+5}$

or

Allocated to the performance obligation for delivering product A

= $120 × $\frac{5}{15}$

or

= $40

Hence, the correct answer is option $40