Question
SkysongIndustries manufactures sump-pumps. Its most popular product is called the Super Soaker, which has a retail price of $1,230 and costs $580 to manufacture. It
SkysongIndustries manufactures sump-pumps. Its most popular product is called the Super Soaker, which has a retail price of $1,230 and costs $580 to manufacture. It sells the Super Soaker on a standalone basis directly to businesses. Skysong also provides installation services for these commercial customers, who want an emergency pumping capability (with regular and back-up generator power) at their businesses. Skysong also distributes the Super Soaker through a consignment agreement with Menards. Income data for the first quarter of 2017 from operations other than the Super Soaker are as follows.
Revenues | $9,461,000 | ||
Expenses | 7,828,000 |
Skysonghas the following information related to two Super Soaker revenue arrangements during the first quarter of 2017.
1. | Skysong sells 3 Super Soakers to businesses in flood-prone areas for a total contract price of $58,800. In addition to the pumps, Skysong also provides installation (at a cost of $130 per pump). On a standalone basis, the fair value of this service is $180 per unit installed. The contract payment also includes a $10 per month service plan for the pumps for 3 years after installation (Skysongs cost to provide this service is $7 per month). The Super Soakers are delivered and installed on March 1, 2017, and full payment is made to Skysong. Any discount is applied to the pump/installation bundle. | ||
2. | During ships 270 Super Soakers to Menards on consignment. By March 31, 2017, Menards has sold two-thirds of the consigned merchandise at the listed price of $1,230 per unit. Menards notifies Skysong of the sales, retains a 5% commission, and remits the cash due Skysong. |
(a)
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Determine Skysong Industries 2017 first-quarter net income. (Ignore taxes.)
Net income | $ |
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