Question

In 2016, Austin Powers Corporation developed a new product that will be marketed in 2017. In connection with the development of this product, the following costs were incurred in 2016: research and development costs $400,000,materialsandsuppliesconsumed$60,000, and compensation paid to research consultants $125,000. It is anticipated that these costs will be recovered in 2019. What is the amount of research and development costs that Austin Powers should record in 2016 as a charge to expense?

Short answer

$585,000($400,000 + $60,000 + $125,000)

Step-by-step solution

Meaning of R&D Costs

R&D costs are directly related to the research and development of a company's goods or services and any intellectual property created in the process. R&D costs are often incurred when a firm is looking for and developing new goods or services.

Calculation

The amount of research and development costs that Austin Powers should record in 2016 as a charge to expense is calculated by adding all the costs, i.e., research and development costs, materials and supplies consumed, and compensation paid to research consultants.