BCE has included service revenue of $22,100 as a result of a number of one year service
Question:
BCE has included service revenue of $22,100 as a result of a number of one year service policies sold late in December as an “experiment.” These service policies became effective on January 1, 20X4, or shortly thereafter. The policies are sold at an average of $600 per year per customer; the $22,100 represents the total cash received as of year-end (debit cash, credit service revenue). The $600 per customer amount was arrived at by an analysis of previous service provided on a “fee for service” basis to customers. The average cost to BCE was approximately $200 per visit, with an average of 1.7 visits per year to customers. While the service policies allow unlimited visits for service, BCE has restricted the number of policies available due to difficulties in calculating the costs associated with such policies. BCE estimates that the number service calls is likely to increase to about 4 per year; the cost is expected to decrease to around $150 per call. So, at this point, the program is projected to break even. The aggressive pricing of the service policies is due to
(1) the experimental nature of the program
(2) a desire to maintain long-term customer loyalty for future purchases of equipment.
What entry or disclosure, if any, is necessary in this circumstance?
