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.$\begin{array}{lcccc}
& \text { Askin } & \text { Bskin } & \text { Total } \
\text { Sales } & \$ 4,000,000 & \$ 2,600,000 & \$ 6,600,000 \
\text { Cost of goods sold } & (2.600 .000) & (2.100 .000) & (4.700 .000)\
\text { Gross profit } & \$ 1,400,000 & \$ 500,000 & \$ 1,900,000 \
\text { Research and development } & & & (1,170,000)\
\text { Selling expenses }&&&(130,000)\\text { Profit before taxes }&&&\$600,000
\end{array}$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:
A) $175,000.
B) $425,000.
C) $522,500.
D) $207,500.
E) $332,500.

Question

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.$\begin{array}{lcccc} 
& \text { Askin } & \text { Bskin } & \text { Total } \
\text { Sales } & \$ 4,000,000 & \$ 2,600,000 & \$ 6,600,000 \
\text { Cost of goods sold } & (2.600 .000) & (2.100 .000) & (4.700 .000)\
\text { Gross profit } & \$ 1,400,000 & \$ 500,000 & \$ 1,900,000 \
\text { Research and development } & & &  (1,170,000)\
\text { Selling expenses }&&&(130,000)\\text { Profit before taxes }&&&\$600,000
\end{array}$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:
A) $175,000.
B) $425,000.
C) $522,500.
D) $207,500.
E) $332,500.

Quizplus · Accepted Answer

The correct answer is A.The profit before taxes for the Bskin product is $175,000. This is calculated by taking the total profit before taxes of $600,000 and subtracting the portion of research and development and selling expenses that are traceable to Askin, which is 75% of $1,170,000 + $130,000 = $952,500. This leaves $600,000 - $952,500 = $175,000.

Ken Yalters, the COO of FreshSkin, Asked His Cost Management