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. Askin Bskin Total Sales $ 4,000,000 $ 2,600,000 $ 6,600,000 Cost of goods sold (2,600,000 ) (2,100,000 ) (4,700,000 ) Gross profit $ 1,400,000 $ 500,000 $ 1,900,000 Research and development (1,170,00
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. Askin Bskin Total Sales $ 4,000,000 $ 2,600,000 $ 6,600,000 Cost of goods sold (2,600,000 ) (2,100,000 ) (4,700,000 ) Gross profit $ 1,400,000 $ 500,000 $ 1,900,000 Research and development (1,170,00
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
| Askin | Bskin | Total | |||||||||
| Sales | $ | 4,000,000 | $ | 2,600,000 | $ | 6,600,000 | |||||
| Cost of goods sold | (2,600,000 | ) | (2,100,000 | ) | (4,700,000 | ) | |||||
| Gross profit | $ | 1,400,000 | $ | 500,000 | $ | 1,900,000 | |||||
| Research and development | (1,170,000 | ) | |||||||||
| Selling expenses | (130,000 | ) | |||||||||
| Profit before taxes | $ | 600,000 | |||||||||
Seventy-five percent of the research and development and selling expenses were traceable to Askin.
Profit before taxes for the Bskin product, per life-cycle income statements, is:
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