Gail Johnston is the CFO of Lancet Technologies, a manufacturer of parts and supplies for the cable TV industry. Gail has developed an analysis of the profitability of the firm's two main product lines, cable hardware, and cable supplies. Based on the analysis, she concludes that cable hardware is the most profitable of the firm's product lines. Required:
1. Explain why Gail may be wrong in her assessment of the relative performances of the two product lines.
2. Suppose that 80 percent of the R&D and selling expenses are traceable to Hardware line. Prepare life-cycle income statements for each product and calculate the return on sales. What does this tell you about the importance of accurate life-cycle costing?

Question

Gail Johnston is the CFO of Lancet Technologies, a manufacturer of parts and supplies for the cable TV industry. Gail has developed an analysis of the profitability of the firm's two main product lines, cable hardware, and cable supplies. Based on the analysis, she concludes that cable hardware is the most profitable of the firm's product lines.  Required:
1. Explain why Gail may be wrong in her assessment of the relative performances of the two product lines.
2. Suppose that 80 percent of the R&D and selling expenses are traceable to Hardware line. Prepare life-cycle income statements for each product and calculate the return on sales. What does this tell you about the importance of accurate life-cycle costing?

Quizplus · Accepted Answer

The Answer of Gail Johnston is the CFO of Lancet Technologies, a manufacturer of parts and supplies for the cable TV industry. Gail has developed an analysis of the profitability of the firm's two main product lines, cable hardware, and cable supplies. Based on the analysis, she concludes that cable hardware is the most profitable of the firm's product lines.  Required:
1. Explain why Gail may be wrong in her assessment of the relative performances of the two product lines.
2. Suppose that 80 percent of the R&D and selling expenses are traceable to Hardware line. Prepare life-cycle income statements for each product and calculate the return on sales. What does this tell you about the importance of accurate life-cycle costing?

Gail Johnston Is the CFO of Lancet Technologies, a Manufacturer