Honda sells recreational vehicles and is running a special package on one of its four wheel models. Each package includes the following:
- A 2015 Jaeger Model all-terrain vehicle with an MSRP of $10,000.
- A titanium wrench cabled winch with an MSRP of $2,000
- A set of off-road aggressive tread tires with an MSRP of $500
- Three years of annual service appointments that cost $100 each.
The entire package is being sold for $11,000. Extended five-year warranties are available for $1,000 sold separately from the package. The producers of the Jaeger Model will compensate Abraxis with $100,000 if it sells 5,000 packages in the first year, $500,000 if it sells 10,000 packages in the first year, and $750,000 if they sell 17,000 packages in the first year. The probability of Abraxis selling less than 5,000 is 10%, the probability of selling between 5,000 and 10,000 is 40%, the probability of selling between 10,000 and 17,000 is 30%, and the probability of selling over 17,000 is 20%.
A) Suppose 1,500 packages are sold in the first quarter of the year and 70% of the buyers purchase the extended warranties. Record revenues and the appropriate transactions with this deal considering that the probabilities of obtaining the extra compensation are formulated at the end of the first quarter ( the expected outcome approach).
B) Suppose the MSRP of the titanium wrench were not available. Using the residual approach, assess the amount of revenue contributed by the wench assuming 1,500 packages were sold.
C) At the end of the first year, account for the adjustments that would be made for first quarter sales assuming that 1,330 clients used their annual service. Also assume that over the year, Honda sold 11,000 packages and that the expected probabilities from the first quarter hadn't changed over the year.