CFR is a manufacturer of Industrial machines. During 2020, CFR launched a new machine with model name
Question:
CFR is a manufacturer of Industrial machines. During 2020, CFR launched a new machine with model name Omega. Each unit of Omega is being sold for Rs. 10 million payable upon delivery. Revenue from sale of Omega is recognised upon delivery to the customer premises. Further, a two-year support service contract for Omega is sold separately at Rs. 0.1 million payable monthly. Revenue from support services is recognized over the contract period. Customers can also obtain such support services from third parties.
Sales of Omega have remained below expectation so far. The marketing department has proposed the following options to increase the sales of Omega:
Option 1: CFR would offer customers a bundle of Omega and support services at a combined price of Rs. 11 million.
Option 2: Upon purchase of one unit of Omega, customers would be provided with an option to purchase another unit of Omega within 12 months at a material discount of 25%. It is estimated that 40% customers will avail the option.
Required: Discuss the recognition and amount of revenue under each of the above independent options. Compute the amount of revenue, wherever possible.
CFR is a manufacturer of Industrial machines. During 2020, CFR launched a new machine with model name Omega. Each unit of Omega is being sold for Rs. 10 million payable upon delivery. Revenue from sale of Omega is recognised upon delivery to the customer premises. Further, a two-year support service contract for Omega is sold separately at Rs. 0.1 million payable monthly. Revenue from support services is recognized over the contract period. Customers can also obtain such support services from third parties.
Sales of Omega have remained below expectation so far. The marketing department has proposed the following options to increase the sales of Omega:
Option 1: CFR would offer customers a bundle of Omega and support services at a combined price of Rs. 11 million.
Option 2: Upon purchase of one unit of Omega, customers would be provided with an option to purchase another unit of Omega within 12 months at a material discount of 25%. It is estimated that 40% customers will avail the option.
Required:
Discuss the recognition and amount of revenue under each of the above independent options. Compute the amount of revenue, wherever possible.
Expert Answer:
Option 1 Sales revenue to be recognized Rs 8870968 on delivery of machine to the customer Service re... View the full answer
