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

question 64

Multiple Choice

Lavalier Company developed the following budgeted life-cycle income statement for two proposed products. Each product's life cycle is expected to be two years. $\begin{array}{lrrr}&\text { Product AA} & \text { Product BB } & \text { Total }\\\text { Sales } & \$ 400,000 & \$ 350,000 & \$ 750,000 \\\text { Cost of goods sold } & 300,000 & 200,000 & 500,000 \\\text { Gross profit } & \$ 100,000 & \$ 150,000 & \$ 250,000\\\text { Period expenses: }\\\text { Research and development }&&&(100,000) \\\text { Marketing }&&&(75,000) \\\text { Life-cycle income }&&&\$75,000\\\end{array}$
A 12 percent return on sales is required for new products. Because the proposed products did not have a 12 percent return on sales, the products were going to be dropped.
Relative to Product BB, Product AA requires more research and development costs but fewer resources to market the product. Sixty-five percent of the research and development costs are traceable to Product AA, and 40 percent of the marketing costs are traceable to Product AA.
If research and development costs and marketing costs are traced to each product, life-cycle income for Product BB would be

• A)$70,000.
• B)$90,000.
• C)$105,000.
• D)$150,000.

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Definitions:

UCC Statute of Limitations

The time limit established by the Uniform Commercial Code within which a lawsuit must be filed to resolve various types of disputes, notably in commercial transactions.

Self-Destructs

An act of causing oneself or something to fail or to be destroyed, often implying a mechanism or choice leading to self-ruin.

Third-Party Claim

A claim made by a defendant against someone who is not already a party to the lawsuit, asserting that this "third party" is actually liable for the plaintiff's damages.

Privity of Contract

A principle indicating that only the parties involved in a contract have the rights and obligations arising from it.