Question

Lavalier Company developed the following budgeted life-cycle income statement for two proposed products. Each product's life cycle is expected to be two years.

	Product AA	Product BB	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			$75,000

A 12 percent return on sales is required for new products. Because the proposed products did not have a 12 percent return on sales, the products were going to be dropped.

Relative to Product BB, Product AA requires more research and development costs but fewer resources to market the product. Sixty-five percent of the research and development costs are traceable to Product AA, and 40 percent of the marketing costs are traceable to Product AA.

If research and development costs and marketing costs are traced to each product, life-cycle income for Product BB would be

a.$90,000.

b.$105,000.

c.$70,000.

d.$150,000.

Awesome Products Company manufactures a product sold to retailers. It is considering suppliers for its process. The supplier quality involves four activity areas:

Activity Area	Cost Driver and Rate
Order cost	$120 per purchase order
Defective units	$200 per unit internal failure costs
Delivery trips	$5 per delivery
Carrying cost	$1 per order

The following supplier information is given:

	X3	Y2	Z1
Materials units needed	100,000	100,000	100,000
Actual purchase price	$5	$4.99	$5.01
Number of purchase orders	20	30	18
Number of defects	6	12	0
Number of deliveries	20	30	18

Which supplier is least costly?

a.Y2

b.X3

c.Z1

d.They are equally costly.

Answer 1

Question 1

Answer C $70,000

	Product AA	working	Product BB	working	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	-65000	(100000X.65)	-35000	(10000X.35)	(100,000)
Marketing	-30000	(75000X.4)	-45000	(75000X.6)	(75,000)
Life-cycle income	$5,000		$70,000		$75,000

Question 2

OptionC Z1

Z1 is least costly

Particulars	X3	Y2	Z1
Material units needed	100000	100000	100000
Actual purchase price	5	4.99	5.01
Material cost(a)	500000	499000	501000
no. of purchase order	20	30	18
order cost per purchase order	120	120	120
Total ordering cost (b)	2400	3600	2160
No.of defects	6	12	0
Defective unit cost	200	200	200
Total defect cost©	1200	2400	0
No. of deliveries	20	30	18
cost per delivery	5	5	5
Total delivery cost(d)	100	150	90
Carrying cost per oder	1	1	1
Totoal orders	20	30	18
Total carrying cost(e)	20	30	18
Total cost (a+b+c+d+e)	503720	505180	503268