Orange Inc. offers a discount on an extended warranty on its oPhone when the warranty is purchased at the time the oPhone is purchased. The warranty normally has a price of $136, but Orange offers it for $113 when purchased along with an oPhone. Orange anticipates a 70% chance that a customer will purchase the extended warranty along with the oPhone. Assume Orange sells to 1,000 oPhones with the extended warranty discount offer. What is the total stand-alone selling price that Orange would use for the extended warranty discount option for purposes of allocating revenue among the performance obligations in those 1,000 oPhone contracts?

The total stand-alone selling price that Orange would use for the extended warranty discount option for purposes of allocating revenue among the performance obligations in those 1,000 oPhone contracts is $16,100

Explanation:

Provided data from the question;

normal price = $136

discounted price when purchased along with an oPhone = $113

chance that a customer will purchase the extended warranty along with the oPhone = 70 percent

Assumed number of oPhones sold with the extended warranty discount offer = 1000

To determine the total stand-alone selling price;

= (normal price - discounted price) * percentage chance * assumed amount

= ($136 - $113) * 0.7 * 1000

= $23 * 0.7 * 1000

= $16,100