Question
Chen Company manufactures equipment. Chen has the following arrangement with Bean Inc. Bean purchases equipment from Chen for a price of $1,000,000 and contracts
Chen Company manufactures equipment. Chen has the following arrangement with Bean Inc. Bean purchases equipment from Chen for a price of $1,000,000 and contracts with Chen to install the equipment. Chen charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, The cost of the equipment is $600,000. Bean is obligated to pay Chen the $1,000,000 upon the delivery and installation of the equipment. Chen delivers the equipment on June 1, 2017, and completes the installation of the equipment on September 30, 2017. Assume that the equipment and the installation are two distinct performance obligations. Assume Chen cannot determine the standalone selling price of the installation services. As a result, an expected cost plus margin approach is used. The cost of installation is $36,000; Chen prices these services with a 25% margin relative to cost. How should the transaction price of $1,000,000 be allocated among the service obligations? Round to whole number (no decimals) Equipment = Installation =
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