Problem 2 (Life-Cycle Costing)The following revenue and the cost data are for Round Manufacturing's toradial saws. The RM 200 is for the commercial market and the RM 800 is forindustrial customers. Both products are expected to have three-year life cycles.RM200Year 1Year 2Year 3Revenue CostsP 500,0001,000,000300,00060,00080,00020,000P2,500,000-0-P2,000,000Research and developmentPrototypesMarketing-0-50,000320,000 475,000120,000808,00060,000P 650,000 P 810,000-0-Distribution130,0001,000,00085,000ManufacturingCustomer service-0-IncomeP(960,000) Cost Planning for Product Life Cycle... 229RM800Year 1Year 2Year 3Revenue CostsResearch and developmentPrototypesMarketingDistributionManufacturingCustomer serviceP 900,0001,150,000550,000124,000170,00085,000P.P1,800,000P2,000,000-0--0-30,000200,000300,000600,00020,00010,000260,000410,000700,000-0-10.000IncomeP(1,179,000)P 650,000P 610,000Required:1. How would a product life-cycle income statement differ from this calendar-year income statement?2. Prepare a three-year life-cycle income statement for both products. Whichproduct appears to be more profitable?3. Prepare a schedule showing each cost category as a percentage of totalannual costs. Pay particular attention to the research and development andcustomer service categories. What do you think this indicates about theprofitability of each product over the three-year life cycle?

The income statement of the company will show the income and expenses of the company. The company's…

Cost Planning for Product Life Cycle... 229 RM800 Year 1 Year 2 Year 3 Revenue Costs Research and development Prototypes Marketing Distribution P 900,000 1,150,000 550,000 124,000 170,000 85,000 -0- P(1,179,000) P1,800,000 -0- 30,000 200,000 300,000 600,000 20,000 P 650,000 P2,000,000 -0- 10,000 260,000 410,000 700,000 10,000 P 610,000 Manufacturing Customer service Income Required: 1. How would a product life-cycle income statement differ from this calendar- year income statement? 2. Prepare a three-year life-cycle income statement for both products. Which product appears to be more profitable? 3. Prepare a schedule showing each cost category as a percentage of total annual costs. Pay particular attention to the research and development and customer service categories. What do you think this indicates about the profitability of each product over the three-year life cycle?

Cost Planning for Product Life Cycle... 229 RM800 Year 1 Year 2 Year 3 Revenue Costs Research and development Prototypes Marketing Distribution P 900,000 1,150,000 550,000 124,000 170,000 85,000 -0- P(1,179,000) P1,800,000 -0- 30,000 200,000 300,000 600,000 20,000 P 650,000 P2,000,000 -0- 10,000 260,000 410,000 700,000 10,000 P 610,000 Manufacturing Customer service Income Required: 1. How would a product life-cycle income statement differ from this calendar- year income statement? 2. Prepare a three-year life-cycle income statement for both products. Which product appears to be more profitable? 3. Prepare a schedule showing each cost category as a percentage of total annual costs. Pay particular attention to the research and development and customer service categories. What do you think this indicates about the profitability of each product over the three-year life cycle?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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