Orange Inc. offers a discount on an extended warranty on its oPhone when the warranty is purchased at the time the oPhone is purchased. The warranty normally has a price of $158, but Orange offers it for $124 when purchased along with an oPhone. Orange anticipates an 80% chance that a customer will purchase the extended warranty along with the oPhone. Assume Orange sells to 1,000 oPhones with the extended warranty discount offer. What is the total stand-alone selling price that Orange would use for the extended warranty discount option for purposes of allocating revenue among the performance obligations in those 1,000 oPhone contracts?

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jepessoa jepessoa · Answer 1 · 2019-12-22T00:38:04+01:00

Answer:

$27,200

Explanation:

The standalone selling price is the price at which Orange would sell the warranty separately from the oPhone.

This is calculated by finding the difference between normal selling price minus offer price = $158 - $124 = $34

Then we multiply that difference by the percentage of expected warranty purchases = $34 x 80% = $27.20

Finally since we are asked to find the standalone price for 1,000 units sold = $27.20 x 1,000 = $27,200