Max's Movie Store encounters revenue-allocation decisions with its bundled product sales. Here, two or more of the movie videos are sold as a single package. Managers at Max's are keenly interested in individual product-profitability figures. Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows:
| | Stand-Alone Selling Price, | Cost | | Package | Packaged Price |
| New Releases | $15 | $2.00 | | New & Older | $20 |
| Older Releases | $10 | $1.50 | | New & Classics | $17 |
| Classics | $8 | $1.25 | | All three | $25 |
Required:
| a. | With selling prices as the weights, allocate the $25 packaged price of "All Three" to the three |
videos using the stand-alone revenue-allocation method.
| b. | Allocate the $25 packaged price of "All Three" to the three types of videos using the incremental |
revenue-allocation method. Assume New Releases is the primary product, followed by Older Releases, and then Classics.
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