Gail Johnston is the CFO of Lancet Technologies, a manufacturer of parts and supplies for the cable TV industry. Gail has developed an analysis of the profitability of the firm's two main product lines, cable hardware, and cable supplies. Based on the analysis, she concludes that cable hardware is the most profitable of the firm's product lines. HardwareSuppliesTotalSales$ 4,000,000$ 3,000,000$ 7,000,000Cost of goods sold(2,300,000)(1,900,000)(4,200,000)Gross profit$ 1,700,000$ 1,100,0002,800,000Research and development (1,200,000)Selling expenses (600,000)Profit before taxes $ 1,000,000 Required:1. Explain why Gail may be wrong in her assessment of the relative performances of the two product lines.2. Suppose that 80 percent of the R & D and selling expenses are traceable to Hardware line. Prepare life-cycle income statements for each product and calculate the return on sales. What does this tell you about the importance of accurate life-cycle costing?

Income Statement PARTICULAR HARDWARE SUPPLIES TOTAL Sales $ 4,000,000 $ 3,000,000…

Answered: Gail Johnston is the CFO of Lancet…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 9PB: Fire Company is a service firm with current service revenue of $900,000 and a 40% contribution...

See similar textbooks

Related questions

Question

Gail Johnston is the CFO of Lancet Technologies, a manufacturer of parts and supplies for the cable TV industry. Gail has developed an analysis of the profitability of the firm's two main product lines, cable hardware, and cable supplies. Based on the analysis, she concludes that cable hardware is the most profitable of the firm's product lines.

	Hardware	Supplies	Total
Sales	$ 4,000,000	$ 3,000,000	$ 7,000,000
Cost of goods sold	(2,300,000)	(1,900,000)	(4,200,000)
Gross profit	$ 1,700,000	$ 1,100,000	2,800,000
Research and development			(1,200,000)
Selling expenses			(600,000)
Profit before taxes			$ 1,000,000

Required:

1. Explain why Gail may be wrong in her assessment of the relative performances of the two product lines.
2. Suppose that 80 percent of the R & D and selling expenses are traceable to Hardware line. Prepare life-cycle income statements for each product and calculate the return on sales. What does this tell you about the importance of accurate life-cycle costing?

Expert Solution