Richardson Systems sells integrated bottling manufacturing systems that involve a conveyer, a labeler, a filler, and a capper. All of this equipment is sold separately by other vendors, and the fair values of the separate equipment are as follows:
Richardson sells the integrated system for $45,000. Each of the components is shipped separately to the customer for the customer to install.
Assume that each of the components can be used independently, even though Richardson sells them as an integrated system. How much revenue should be allocated to each component?
Now assume that the labeler, filler, and capper can't be used in production without the conveyer, and that the conveyer is the last component installed. How much revenue should be recognized at the time the conveyer is installed?