Question

Maxtor Technology incurred the following costs during the year related to the creation of a new type of personal computer monitor: Salaries $ 420,000 Depreciation on R&D facilities and equipment 225,000 Utilities and other direct costs incurred for the R&D facilities 86,000 Patent filing and related legal costs 42,000 Payment to another company for performing a portion of the development work 220,000 Costs of adapting the new monitor for the specific needs of a customer 100,000 What amount should Maxtor report as research and development expense in its income statement?

Answer 1

Research and development expense to be reported in income statement will include only those expenses which are directly related to the reasearch and development and in bringing the asset into working condition.

Depreciation on R&D facilities = $225,000

Direct cost related to the R&D = $86,000

Patent and legal costs = $42,000

Monitor for specific customer = $100,000

Salaries are indirect cost and will not be included

Also expense paid to other company will also not be included as it is also an indirect expense.

Total cost = $453,000