Life-cycle product costing, product emphasis. Starlight Systems Ltd. is examining the ©

profitability and pricing policies of its software division. Starlight develops software for a vari- 2. Mecha operating income ety of clients. Currently it is examining three of its products used by engineering firms. Data $9,995,500 regarding these products follow:

@ Power—software for electrical engineers

@ Mecha—software for mechanical engineers

® Solutions—software for chemical engineers Summary details on each software package over its two-year “cradle-to-grave” product life are as follows:

Assume that no inventory remains on hand at the end of year 2.
Starlight is deciding which product lines to emphasize in its software division. In the past two years, the profitability of this division has been mediocre and Starlight is particularly concerned with the increase in R&D costs in several of its divisions. An analyst in the software division pointed out that, for one of its most recent packages (Solutions), major efforts had been made to cut back R&D costs.
Last week Nancy Sullivan, the software division manager, attended a seminar on product life-cycle management. Sullivan decides to use life-cycle reporting. She collects the following life-cycle cost information for the engineering software packages:

REQUIRED 1. How does a product-life-cycle income statement differ from an income statement that is fiscal year—based? What are the benefits of using a product-life-cycle reporting format?
2. Present a product-life-cycle income statement for each software package. Which package is the most profitable, and which is the least profitable?
3. How do the three software packages differ in their cost structure (the percentage of total costs in each cost category)?LO1

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Number of Units Sold Software Selling Price Year 1 Year 2 Power $420 2,500 8,400 Mecha $525 2,500 5,000 Solutions $300 5,000 2,500