Kingbird Company manufactures equipment. Kingbird’s products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $400,000 to $1,500,000 and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order for the installed equipment to perform to specifications. Kingbird has the following arrangement with Henderson Inc. ● Henderson purchases equipment from Kingbird for a price of $1,090,000 and contracts with Kingbird to install the equipment. Kingbird charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $615,000. ● Henderson is obligated to pay Kingbird the $1,090,000 upon the delivery and installation of the equipment. Kingbird delivers the equipment on June 1, 2020, and completes the installation of the equipment on September 30, 2020. The equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations which should be accounted for separately. Assuming Kingbird does not have market data with which to determine the standalone selling price of the installation services. As a result, an expected cost plus margin approach is used. The cost of installation is $32,700; Kingbird prices these services with a 30% margin relative to cost.
Kingbird Company manufactures equipment. Kingbird’s products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $400,000 to $1,500,000 and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order for the installed equipment to perform to specifications. Kingbird has the following arrangement with Henderson Inc.
| ● | Henderson purchases equipment from Kingbird for a price of $1,090,000 and contracts with Kingbird to install the equipment. Kingbird charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $615,000. | |
| ● | Henderson is obligated to pay Kingbird the $1,090,000 upon the delivery and installation of the equipment. |
Kingbird delivers the equipment on June 1, 2020, and completes the installation of the equipment on September 30, 2020. The equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations which should be accounted for separately.
Assuming Kingbird does not have market data with which to determine the standalone selling price of the installation services. As a result, an expected cost plus margin approach is used. The cost of installation is $32,700; Kingbird prices these services with a 30% margin relative to cost.
How should the transaction price of $1,090,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to 0 decimal places.)
|
Equipment
|
$enter a dollar amount rounded to 0 decimal places | |
|---|---|---|
|
Installation
|
$enter a dollar amount rounded to 0 decimal places |
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
