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.
Sales
Cost of goods sold
Gross profit
Research and development
Selling expenses
Profit before taxes
Askin
Bskin
Total
$ 4,000,000 $ 2,600,000 $ 6,600,000
(2,600,000) (2,100,000) (4,700,000)
$ 1,400,000 $ 500,000 $ 1,900,000
(1,170,000)
(130,000)
$ 600,000
Seventy-five percent of the research and development and selling expenses were traceable to Askin.
Profit before taxes for the Askin product, per life-cycle income statements, is:
Multiple Choice
$175,000.
$425,000.