Ken Yalters, the COO of FreshSkin, Asked His Cost Management

question 42

Multiple Choice

Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line profitability analysis for his firm's two products - Askin and Bskin. The two products are skin care products that require a large amount of research and development and advertising. He received the report below. Ken concluded that Askin was the more profitable product, and that perhaps cost-cutting measures should be applied to the Bskin product. $\begin{array}{lcccc} & \text { Askin } & \text { Bskin } & \text { Total } \\\text { Sales } & \$ 4,000,000 & \$ 2,600,000 & \$ 6,600,000 \\\text { Cost of goods sold } & (2.600 .000) & (2.100 .000) & (4.700 .000) \\\text { Gross profit } & \$ 1,400,000 & \$ 500,000 & \$ 1,900,000 \\\text { Research and development } & & & (1,170,000) \\\text { Selling expenses }&&&(130,000) \\\text { Profit before taxes }&&&\$600,000\end{array}$ Seventy-five percent of the research and development and selling expenses were traceable to Askin.
Profit before taxes for the Askin product, per life-cycle income statements, is:

• A) $175,000.
• B) $425,000.
• C) $522,500.
• D) $207,500.
• E) $332,500.

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