Presentation on theme: "of products gives rise to revenue-allocation issues."— Presentation transcript:
1 of products gives rise to revenue-allocation issues. Allocating RevenuesBundlingof products gives rise torevenue-allocation issues.
2 Revenues and Bundled Products A bundled product is a package of two or moreproducts (or services) sold for a single price.Bundled product sales are also referred toas “suite sales.”The individual components of the bundle alsomay be sold as separate items at their own“stand-alone” prices.
3 Revenues and Bundled Products What businesses provide bundled products?BanksHotelsToursCheckingSafetydeposit boxesInvestmentadvisoryLodgingFood andbeverageservicesRecreationTransportationLodgingGuides
4 Revenue Allocation Methods English Languages Institute buys Englishlanguage software programs andthen sells them in Mexico and Central America.English sells the following programs:Grammar, Translation, and CompositionThese programs are offered stand-aloneor in a bundle.
11 Stand-Alone Revenue Allocation Method Unit costs:This method uses the costs of the individualproducts to determine the weights for therevenue allocations.Grammar:$180 ÷ $225 = 0.80, $290 × 0.80 = $232Translation:$45 ÷ $225 = 0.20, $290 × 0.20 = $58
12 Stand-Alone Revenue Allocation Method Physical units:This method gives each product unit in thesuite the same weight when allocatingsuite revenue to individual products.With two products in the suite, eachproduct is allocated 50% of suite revenues.1 ÷ (1 + 1) = 0.50$290 × 0.50 = $145
13 Stand-Alone Revenue Allocation Method Stand-alone product revenues:This method captures the quantity of eachproduct sold as well as their selling prices.Assume that the stand-alone revenues in 2003are Grammar $734,400, Translation $81,600,and Composition $133,200.What are the weights for the Grammarand Translation suite?
16 Incremental Revenue Allocation Method The first-ranked product is termed theprimary product in the bundle.The second-ranked product is termedthe first incremental product.The third-ranked product is the secondincremental product, and so on.
17 Incremental Revenue Allocation Method Assume that Grammar is designatedas the primary product.If the suite selling price exceeds the stand-alone price of the primary product, theprimary product is allocated 100%of its stand-alone revenue.
18 Incremental Revenue Allocation Method Grammar and Translation suite selling price= $290 per dayAllocated to Grammar: $255Remaining to be allocated: ($290 – $255) = $35Allocated to Translation: $35