Decision Support Systems (DSS) is examining the profitability and pricing policies of its software division. The DSS software division develops software packages for engineers. DSS has collected data on three of its most recent packages:

• EE-46: package for electrical engineers
• ME-83: package for mechanical engineers
• IE-17: package for industrial engineers.

Summary details on each package over their two year cradle-to-grave product lives are as follows:

Package	Selling price	Number of units sold Year 1 Year 2
EE-46	RM 250	2000	8000
ME-83	RM 300	2000	3000
IE-17	RM 200	5000	3000

Assume that no stock remains on hand at the end of year 2.

DSS is deciding which product lines to emphasise in its software division. In the past two years, the profitability of this division has been mediocre. DSS is particularly concerned with the increase in R&D costs in several of its divisions. An analyst at the software division pointed out that for one of its most recent packages (IE-17), major efforts had been made to cut back R&D costs.

Last week, Karina Pawanteh, the software division manager, attended a seminar on product life-cycle management. The topic of life-cycle reporting was discussed. Karina decides to use this approach in her on division. She collects the following life-cycle revenue and cost information for the EE-46, ME-83 and IE-17 packages:

	EE-46		ME-83		IE-17
	Year 1	Year 2	Year 1	Year 2	Year 1	Year 2
Revenues	RM 500000	RM 2000000	RM 600000	RM 900000	RM 1000000	RM600000
Costs:
R&D	700,000	0	450000	0	240000	0
Product design	185000	15000	110000	10000	80000	16000
Manufacturing	75000	225000	105000	105000	143000	65000
Marketing	140000	360000	120000	150000	240000	208000
Distribution	15000	60000	24000	36000	60000	36000
Customer service	50000	325000	45000	105000	220000	388000

Required:

1. How does a product life-cycle income statement differ from the regular income statement that is calendar-based? What are TWO benefits of using a product life-cycle reporting format? (3 marks)
2. Present a product life-cycle income statement for each software package. Which package is the most profitable, and which is the least profitable? (7 marks)
3. Prepare a table to show how the three software packages differ in their cost structure (the percentage of total costs in each category). Explain the figures in the table in terms of differences between the three packages. Explain TWO possible causes for the differences in costs for the different stage of the life cycle across software packages.