Chris Johnson is the CFO of RNT, a manufacturer of parts and supplies for the cable TV

industry. Chris has developed an analysis of the profitability of the firm's two main
product lines, cable hardware, and cable supplies. Based on the analysis, he concludes
that cable hardware is the most profitable of the firm's product lines.

H ard w are S u p p lie s T o ta l

S a le s $ 4 ,0 0 0 ,0 0 0 $ 3 ,0 0 0 ,0 0 0 $ 7 ,0 0 0 ,0 0 0
C o s t o f g o o d s s o ld ( 2 ,3 0 0 ,0 0 0 ) ( 1 ,9 0 0 ,0 0 0 ) ( 4 ,2 0 0 ,0 0 0 )
G ro s s p ro fit $ 1 ,7 0 0 ,0 0 0 $ 1 ,1 0 0 ,0 0 0 $ 2 ,8 0 0 ,0 0 0
R e s e a rc h a n d d e v e lo p m e n t ( 1 ,2 0 0 ,0 0 0 )
S e llin g e x p e n s e s ( 6 0 0 ,0 0 0 )
P ro fit b e fo re ta x e s $ 1 ,0 0 0 ,0 0 0

Required:

(1) Explain why Chris 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?