Question

Beech Company made the following expenditures relating to Product FG.

Legal cost to file a patent on Product FG. Production of the

finished product would not have been undertaken without the

patent.

25,000

Special equipment to be used for development of Product FG. The

equipment has an estimated useful life of four years.

200,000

Labor and material costs incurred in producing a prototype model 750,000

Cost of testing the prototype 78,000

Trouble shooting breakdown during production. 38,000

Cost of routine on-going effort to refine, enrich or improve quality

of Product FG. 86,000

Required:

1. What is the total cost that should recorded as research and development cost?

2. What is the total cost that should be part of Intangible assets?

3. What is the total cost that should be part of operating expense?

Answer 1

Answer:

1) What is the total cost that should recorded as research and development cost?
Special equipment to be used solely for development of Product FG:	200,000.00	The special equipment has no other use and is expensed immediately. Although the equipment has a 4-year life, it has no other use beyond this project and thus qualifies for immediate expensing.
Labor and material costs incurred in producing a prototype model:	750,000.00
Cost of testing the prototype:	78,000.00
Total cost that should recorded as research and development cost	1,028,000.00
2)
Total intangible cost = (Patent)	25000
3)
Troubleshooting in connection with breakdowns during commercial production	38,000.00
Cost of Routine	86,000.00
Total cost operatinf expenses	124,000.00