Shoe box, a shoe manufacturer, has developed a new product called the ’Smart Shoe’ for children, which has a built-in tracking device. The shoes are expected to have a life cycle of two years, at which point Shoe box hopes to introduce a new type of Smart Shoe with even more advanced technology. Shoe box plans to use life cycle costing to work out the total production cost of the Smart Shoe and the total estimated profit for the two-year period. Shoe box has spent N$5-6m developing the Smart Shoe. The time spent on this development that the company missed out on the opportunity of earning an estimated N$800 000 contribution from the sale of another product. The company has applied for and been
granted a ten-year patent for the technology, although it must be renewed each year at a cost of N$200 000. The costs of the patent application were N$500 000, which included N$20 000 for the salary costs of Shoe box’s lawyer, who is a permanent employee of the company and was responsible for preparing the application
The following information is also available for the next two years:
Required:
- Differentiate a product life-cycle income statement from a calendar-based
income statement(3) - Applying the principles of life cycle costing, calculate the total expected profit
for Shoe box for the two-year period.(12)
