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:
Stand-Alone
Selling Price Cost Package Packaged Price
Word Processing(WP) $125 $18 WP & SS $220
Spreadsheet (SS) $150 $20 WP & AS $280
Accounting Software (AS) $225 $25 All three $380
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.