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. Return on sales for Product A 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. Return on sales for Product A would be

Quizplus · Accepted Answer

To calculate the return on sales for Product A, we need to divide its total net income by its total sales revenue.

Total net income for Product A = $160,000 + $192,000 = $352,000 
Total sales revenue for Product A = $800,000 + $1,200,000 = $2,000,000

Return on sales for Product A = ($352,000 ÷ $2,000,000) x 100% = 17.6%

However, the Algonquin Company requires a 10% return on sales for new products. Since Product A does not meet this requirement, it would be dropped. Therefore, the correct answer is C (8.2%), which is the return on sales for Product B.

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