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 $136, but Orange offers it for $113 when purchased along with an oPhone. Orange anticipates a 70% 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?

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 is $16,100

Explanation:

Provided data from the question;

normal price = $136

discounted price when purchased along with an oPhone = $113

chance that a customer will purchase the extended warranty along with the oPhone = 70 percent

Assumed number of oPhones sold with the extended warranty discount offer = 1000

To determine the total stand-alone selling price;

= (normal price - discounted price) × percentage chance × assumed amount

= ($136 - $113) × 0.7 × 1000

= $23 × 0.7 × 1000

= $16,100

$16,100

Explanation:

Total stand-alone selling price to be used for the extended warranty discount option can be calculated as the difference between the warranty normal price of $136 and $113 that is offered for sale when purchased along with an oPhone multiply by the 70% chance that a customer will purchase the extended warranty along with the oPhone and 1,000 oPhones with the extended warranty discount offer. This is given as follows:

Total stand-alone selling price = ($136 - $113) × 70% × 1,000

                                                   = 23 × 700

Total stand-alone selling price = $16,100.

Therefore, he 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 is $16,100.

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