Figure 11-4 the Algonquin Company developed the following budgeted life-cycle income statement for two proposed products. Each product's life cycle is expected to be two years.
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 figure 11-4. If research and development costs and marketing costs are traced to each product, life-cycle income for Product B would be

Question

Figure 11-4 the Algonquin Company developed the following budgeted life-cycle income statement for two proposed products. Each product's life cycle is expected to be two years.
 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 figure 11-4. If research and development costs and marketing costs are traced to each product, life-cycle income for Product B would be

Quizplus · Accepted Answer

To calculate the life-cycle income for Product B with traced costs, we need to adjust the original budgeted amounts by multiplying the research and development costs and marketing costs by their respective trace percentages for Product B (40% and 70%, respectively).

Adjusted Cost of Goods Sold (COGS) for Product B = $90,000 x 80% = $72,000
Adjusted Research and Development Costs for Product B = $20,000 x 40% = $8,000
Adjusted Marketing Costs for Product B = $30,000 x 70% = $21,000

Adjusted Total Costs for Product B = $101,000

Adjusted Revenue for Product B = $120,000

Adjusted Life-cycle Income for Product B = $19,000

Therefore, the answer is B) $7,000, which is the difference between the original life-cycle income for Product B ($12,000) and the adjusted life-cycle income for Product B ($19,000).

Figure 11-4 the Algonquin Company Developed the Following Budgeted Life-Cycle