Moore Development 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 12 percent return on sales is required for new products. Because the proposed products did not have a 12 percent return, the product were not going to be produced.
Product A Product B Total
Sales $ 400,000 $350,000 $750,000
Cost of goods sold 300,000 200,000 500,000
Gross profit $ 100,000 $ 150,000 $ 250,000
Period expenses:
Research and Development (100,000)
Marketing (75,000)
Life-cycle income $750,000
Product A requires more research and development costs but fewer resources to market than Product B. Sixty-five percent of the research and development costs are traceable to Product A, and 40 percent of the marketing costs are traceable to Product A.
a. What would be the life-cycle income for Product A if research and development costs and marketing costs are traced to each product?
b. What would be the life-cycle income for Product B if research and development costs and marketing costs are traced to each product?