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Individual product-profitability

Elmo's Educational Software Outlet sells two or more of the video games as a single package. Managers are keenly interested in individual product-profitability figures. Information pertaining to three bundled products and the stand-alone prices is as follows:

Stand-Alone

Selling Price
Cost

Package
Packaged

Price

Reading Fun
$50
$7.20

1. Reading Fun & Math Fun
$88

Math Fun
$60
$8.00

2. Reading Fun & Analysis
$112

Analysis
$90
$10.00

3. All three
$152

Using the incremental method for revenue allocation, what amount of revenue will be allocated to Reading Fun in the first package (Reading Fun & Math Fun)? Assume Reading Fun is the primary product, followed by Math Fun, and then Analysis.

Solution Preview

Hi,
Please see the response to your posting as below:

Prices:
Reading Fun $50
Math Fun $60
Reading Fun & Math Fun $88
Primary product: Reading ...

Solution Summary

Solution contains calculation of amount of revenue that will be allocated to the product using the incremental method for revenue allocation.

$2.19