Max's Movie Store Encounters Revenue-Allocation Decisions with Its Bundled Product

Essay

Max's Movie Store encounters revenue-allocation decisions with its bundled product sales. Here, two or more of the movie videos are sold as a single package. Managers at Max's are keenly interested in individual product-profitability figures. Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows:

Required:
a.With selling prices as the weights, allocate the $25 packaged price of "All Three" to the three videos using the stand-alone revenue-allocation method.
b.Allocate the $25 packaged price of "All Three" to the three types of videos using the incremental revenue-allocation method. Assume New Releases is the primary product, followed by Older Releases, and then Classics.