Richard Co. incurred research and development costs in 2011 as follows: Equipmen

Question

Richard Co. incurred research and development costs in 2011 as follows:

Equipment acquired for use in various research and
development projects $500,000
Depreciation on the above equipment $67,500
Materials used $100,000
Compensation costs of personnel $250,000
Outside consulting fees $75,000
Indirect costs appropriately allocated $125,000

The total research and development costs in Richard's 2011 income statement
should be:

A. $425,000
B. $542,500
C. $617,500
D. $925,000

I think the answer is C. ($617,500) but I am totally unsure. Please help!

Explanation / Answer

Some of the R&D costs are 1) Cost of the materials, equipment and facilities that have no alternative future uses. 2) Salaries, wages and other related costs of personnel engaged in R&D activities. 3) Purchased intangibles that have no alternative future uses. 4) Contract services 5) A reasonable alloacation of indirect costs except for general and administrative costs, which must be clearly related to be included and expensed. 6) The cost of service potential of assets are included as Research and DEvelopment costs. These costs include depreciation of equipment and facilities, amortization of patents and licences to the extent which they are related to R&D. Therefore, the total R&D costs include: Materials cost $100,000 (+) Compensation costs of perosnnel $250,000 (+) Outside consulting fees $75,000 (+) Depreciation costs $67,500 (+) Indirect costs appropriately allocated $125,000 ------------------------------------------------------------------ Total R&D cost $617,500 ----------------------------------------------------------------- Therefore, the correct option is C

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