Acc SooSAMPLE FIN Ward Company incurred research and devel- opment costs in 1985

Question

Acc SooSAMPLE FIN Ward Company incurred research and devel- opment costs in 1985 as follows: Equi pment acquired for use in various research and develop- ment projects Depreciation on the above 5975,000 equipment Materials used Compensation costs of per- 135,000 ) 200,000 sonnel Outsi de consulting fees Indirect costs appropriately 500,000 150,000 al located 250,000 The total research and development costs charged in Ward's 1985 income statement should be a. $ 850,000 b. $1,085,000 C $1,235,000 $1,825,000 During April, Photo Mart sold 150 instant cameras fo Photo Mart $60 to purchase and carried a one-year wa be replaced over the warranty period and two actually pril chould Photo Mart debit Product Wa

Explanation / Answer

Option c is correct:

=$1,235,000

Explanation

Total research and development cost charged to income statement:

Depreciation on research and development equipment=$135,000

Materials used=$200,000

Compensation cost of personnel=$500,000

Out side consulting fees=$150,000

Indirect cost allocated=$250,000

Total research and development cost=$1,235,000

Only cost of equipment is not added as it's depreciation is charged under research and development cost. This equipment is not used for only this research project but also it's usable in other projects. So it's cost is decreases each year as depreciation is charged on it up to its useful life. If this equipment is only useful for this project , then we expensed all the cost immediately.

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