Brad Company developed the following budgeted life-cycle income statement for two proposed products. Each product’s life cycle is expected to be two years.
$\begin{array}{llll}
&\underline{ \text { Product A}}&
\underline{ \text {Product B}}&\underline{ \text {Total}}\
\text { Sales } & \$ 200,000 & \$ 200,000 & \$ 400,000 \
\text { Cost of goods sold } & \underline{120,000} & \underline{130,000} & \underline{250,000} \
\text { Gross profit } & \underline{\$ 80,000 }&\underline{ \$ 70,000} & \$ 150,000\
\text { Period expenses:}\
\text { Research and development}&&&(70,000)\
\text { Marketing}&&&\underline{ (50,000)}\
\text { Life-cycle income }&&&\underline{ \$30,000}
\end{array}$ A 10 percent return on sales is required for new products.Because the proposed products did not have a 10 percent return on sales,the products were going to be dropped.
Relative to Product B,Product A requires more research and development costs but fewer resources to market the product.Sixty percent of the research and development costs are traceable to Product A,and 30 percent of the marketing costs are traceable to Product A.
-Refer to the figure.What would be the life-cycle income for Product A if research and development costs and marketing costs are traced to each product?

Question

Quizplus · Accepted Answer

The total research and development costs are $70,000, with 60% traceable to Product A, which equals $42,000 ($70,000 * 0.60). The total marketing costs are $50,000, with 30% traceable to Product A, which equals $15,000 ($50,000 * 0.30). The total traced costs for Product A are $57,000 ($42,000 + $15,000). Subtracting these traced costs from Product A's gross profit ($80,000 - $57,000) gives a life-cycle income of $23,000 for Product A.

Brad Company Developed the Following Budgeted Life-Cycle Income Statement for Two