Question: Revenue allocation. Fang Inc. produces and sells DVDs to business people and students who are planning extended stays in China. It has been very successful with two DVDs: Beginning Mandarin and Conversational Mandarin. It is introducing a third DVD, Reading Chinese Characters. It has also decided to market its new DVD in two different packages grouping the Reading Chinese Characters DVD with each of the other two language DVDs. Information about the separate DVDs and the packages follow.
1. Using selling prices, allocate revenues from the BegM + RCC package to each DVD in that package using
(a) the stand-alone method; and
(b) the incremental method, with BegM and RCC in turn as the primary product.
2. Using the selling prices, allocate revenues from the ConM + RCC package to each DVD in that package using
(a) the stand-alone method; and
(b) the incremental method, with ConM and RCC in turn as the primary product.
3. Which method is most appropriate for allocating revenues among the DVDs? Why?