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1)Running Treadmills Inc
1)Running Treadmills Inc. (RTI) is a treadmill manufacturer that sells the Extreme Climber for $4,500, which includes a 24-month warranty. While not widely advertised, RTI's customers can purchase the treadmill without the warranty for $4,000. RTI also offers the warranty on a stand-alone basis to its customers and those who purchased the treadmill at non-RTI outlets on a stand-alone basis for $1,000.
RTI follows IFRS and allocates revenues to the component parts using the relative fair value method. Its policy is to recognize revenue from the sale of warranties on a straight-line basis over the life of the warranty.
Assume that an Extreme Climber is sold on January 1, 20X8, for $4,500. RTI's year end is December 31. What is the total revenue reported by Running Treadmills in the month of January for this sale?
2)In 1916, the Ford Motor Company sold 500,000 Model T Fords at a price of $440. Henry Ford believed that he could increase sales of the Model T by 1,000 cars for every dollar he cut the price. Use this information to calculate the price elasticity of demand for Model T Fords. Use the midpoint formula in your calculation. Assuming the price decreases by $1, and the quantity increases by 1000 cars, the price elasticity of demand for Model T Fords is what?
Expert Solution
1)
The total revenue from the transaction would be $4,500.
It will be allocated separately based on the FMV of both assets, the treadmill at $4,000 and the warranty at $1,000. Treadmill = $4,500 * $4,000 (FMV treadmill) / $5,000 (FMV both)= treadmill $3,600 and warranty $900 for a total of $4,500. Expected warranty expense should also be accrued but that is not part of this calculation. .
Total revenue
Total revenue is the term that is used for the producer or for any individual who produces or sells any commodity. The total revenue is the actual amount earned by the individual after producing or selling a commodity. At the initial stages of any business, the total revenue starts increasing and then reaches to the maximum point.
2)please see the attached file for the complete solution.
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