Figure 11-4 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.
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.
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Refer to Figure 11-4. If research and development costs and marketing costs are traced to each product, life-cycle income for Product A would be

Question

Figure 11-4 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.
 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.
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Refer to Figure 11-4. If research and development costs and marketing costs are traced to each product, life-cycle income for Product A would be

Quizplus · Accepted Answer

To calculate the life-cycle income for Product A, we need to adjust the budgeted amounts for the traced research and development costs and marketing costs. 
Research and development costs traced to Product A = 60% x $30,000 = $18,000
Marketing costs traced to Product A = 30% x $20,000 = $6,000
Adjusted income for Product A = $44,000 - $18,000 - $6,000 = $20,000
Since a 10% return on sales is required for new products, the required income for Product A would be $200,000 x 10% = $20,000. Therefore, the life-cycle income for Product A would be $20,000. 
Therefore, the best choice is C.

Figure 11-4 Brad Company Developed the Following Budgeted Life-Cycle Income