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

question 60

Multiple Choice

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.
$\begin{array}{llll}&\underline{ \text { Product A}}&\underline{ \text {Product B}}&\underline{ \text {Total}}\\\text { Sales } & \$ 200,000 & \$ 200,000 & \$ 400,000 \\\text { Cost of goods sold } & \underline{120,000} & \underline{130,000} & \underline{250,000} \\\text { Gross profit } & \underline{\$ 80,000 }&\underline{ \$ 70,000} & \$ 150,000\\\text { Period expenses:}\\\text { Research and development}&&&(70,000) \\\text { Marketing}&&&\underline{ (50,000) }\\\text { Life-cycle income }&&&\underline{ \$30,000}\end{array}$ 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 the figure.What would be the life-cycle income for Product B if research and development costs and marketing costs are traced to each product?

• A)$7,000
• B)$12,000
• C)$20,000
• D)$35,000

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Definitions:

Price of Capital

The cost of using capital for production, often measured by the interest rate on borrowed funds or the rate of return required on investment.

Price of Labor

The wages or salary paid to workers for their services, often determined by supply and demand in the labor market.

Least-Cost Rule

A principle suggesting that the most efficient way to achieve a desired level of output is by minimizing the cost of input resources.

Unit Cost

The calculated cost to produce one unit of a product, taking into account all relevant production expenses.