research and development costs

Research and Development Costs

The costs a company incurs in process of developing new goods and services to best suit the company's and consumer needs. For example, a vacuum cleaner company may spend a significant amount of money researching and developing profitable vacuum cleaner improvements. The costs decrease the company's profit in the short term but create the potential for higher profits in the medium and long term. As a result, many analysts consider it a positive sign when companies devote a large amount to their research and development costs.
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research and development costs (R&D costs)

The costs that are incurred during the development and introduction of new products to market or during the improvement of existing products. Although R&D costs tend to penalize current profits, they eventually benefit the firm's future profits when new products developed as a result of the research become profitable themselves. Many analysts regard a high proportion of sales revenue devoted to R&D as a positive sign relative to a firm's profit potential and future stock price.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Payers typically consider clinical trials performed during the FDA approval process to be part of the research and development costs of the manufacturer.
Nevertheless, many payers maintain that if a product cannot be legally marketed based on its FDA status, that its use should be part of the research and development costs of the manufacturers.
The 1957 regulations defined R&E expenditures as "research and development costs in the experimental or laboratory sense." The regulations provided only that the term included all costs incident to the development of an experimental or pilot model, a plant process, a product, a formula, an invention, or similar property, and the improvement of already existing similar property.(10) Proposed regulations issued in 1983 and 1989 provided further, albeit somewhat taxpayer-unfavorable, guidance on the meaning of the term, largely by attempting to specify the types of expenditures that did not qualify.
Under the final regulations, if expenditures are designed to eliminate uncertainty concerning the development or improvement of a product, the expenditures will be considered "research and development costs in the experimental or laboratory sense." The regulations set forth the following three types of "uncertainty," any one of which will satisfy the test:
Alternatively, a return on tangible assets for a particular Standard Industrial Classification (SIC) code could be allocated to each party, with the residual profit allocated in proportion to either the value of the intangibles or the expenses incurred to develop the intangibles (research and development costs, advertising or sales-force compensation, etc.).
In 1952, then-Commissioner Dunlap appeared before the Joint Committee on Internal Revenue Taxation and formally announced that the Bureau's policy was to allow deduction of "research and development costs in the experimental or laboratory sense" by taxpayers who currently deducted those costs under an established method of accounting.
* apportioning research and development costs in advance of specific projects is very difficult;
(5) See the cases cited in Swanson, Tax Treatment of Research and Experimentation Expenditures, 34 Taxes 541 (1956), and Miller, Research and Development Costs, N.Y.U.
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