Wentworth Video Parlour Encounters Revenue-Allocation Decisions with Its Bundled Product

Essay

Wentworth Video Parlour encounters revenue-allocation decisions with its bundled product sales.Here,two or more of the movie DVDs are sold as a single package.Managers at Wentworth 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:
$\begin{array}{c}\begin{array}{|c|c|c|}\hline& \text { Stand-Alone } & \text { Cost } \\&\text { Selling Price } &\\ \hline \text { New Releases } & \$ 15 & \$ 2.00 \\\hline \text { Older Releases } & \$ 10 & \$ 1.50 \\\hline \text { Classics } & \$ 8 & \$ 1.25 \\\hline\end{array}\begin{array}{l|l|l|}\hline\text { Package } & \text { Packaged Price } \\\\\hline \text { New \& Older } & \$ 20 \\\hline \text { New \& Classics } & \$ 17 \\\hline \text { All three } & \$ 25 \\\hline \end{array}\end{array}$
Required:
a.With selling prices as the weights,allocate the $25 packaged price of 'All Three' to the three DVDs using the stand-alone revenue-allocation method.
b.Allocate the $25 packaged price of 'All Three' to the three types of DVDs using the incremental revenue-allocation method.Assume New Releases is the primary product,followed by Older Releases,and then Classics.
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