Research and development expenses include the conceptual formulation, design and testing of product alternatives, construction of prototypes, and operation of pilot plants. This policy addresses how to account for these costs.

According to this policy, costs clearly related to research and development activities should be separately identified and charged to expense when incurred. These include the cost of materials, equipment and facilities (or appropriate depreciation), personnel, intangibles purchased from others (or appropriate amortization), contract services and indirect costs.