TGX Global sells excavators with an average sale price of 50

TGX Global sells excavators, with an average sale price of $500,000 per excavator. TGX received new orders for 90 excavators in 2018. TGX produced & delivered 120 excavators in 2018: 50 excavators were ordered in 2017 and the rest (70 excavators) were ordered in 2018. TGX received payment for 110 excavators. TGX began selling 1-year maintenance services contracts for $50,000 per excavator in 2018, which begin after the excavator is delivered. Contracts were sold on 50% of all excavator orders made in 2018 (no contracts were sold on orders placed in 2017). Assume all excavators delivered in 2018 are delivered at year end, calculate TGX’s 2018 revenue based on the transactions described above.

A. $45.0 million

B. $55.0 million

C. $60.0 million

D. $61.0 million

E. $66.0 million

Solution

Sale revenue -2017 orders 50*500000         25,000,000 -2018 orders 70*500000         35,000,000 Maintenance Service 70*50%*50000                         -   Total Revenue         60,000,000 So option C is correct Since orders are delivered at year end and maintenace service will belong to next year any amount collected will not be recognized as revenue of 2018