Question
The table shows the estimated profit from two new products over five years. Model A cost £ 29,000 to develop and Model B cost £ 57,500 . Year & Model A & Model B Year 1 & 12,000 & 8,500 Year 2 & 15,500 & 12,500 Year 3 & 19,000 & 18,000 Year 4 & 23,000 & 22,500 Year 5 & 20,500 & 31,500 In which year will the development costs of Model A be recouped from profits on this model?
Answer
4.5
(220 Votes)
Hayden
Master · Tutor for 5 years
Answer
The development costs of Model A will be recouped from profits on this model in Year 3.
Explanation
To find out when the development costs of Model A will be recouped from profits, we need to add up the profits from each year until they equal or exceed the development cost of £29,000. 1. In Year 1, the profit from Model A is £12,000. The remaining development cost is £29,000 - £12,000 = £17,000.2. In Year 2, the profit from Model A is £15,500. Adding this to the profit from Year 1, we get £12,000 + £15,500 = £27,500. The remaining development cost is £29,000 - £27,500 = £1,500.3. In Year 3, the profit from Model A is £19,000. Adding this to the total profit from Years 1 and 2, we get £27,500 + £19,000 = £46,500. This exceeds the development cost of £29,000.So, the development costs of Model A will be recouped from profits on this model in Year 3.