Max and Marv are starting a new business venture and are in the process of evaluating their product lines. One new product, hand-made wooden tables, has incurred $30,000 in development costs. These costs are to be amortized over a three-year period, the expected product life cycle. The direct costs of each table averages $90. Other costs for making the tables are estimated at $100,000 per year. The current sales program for tables is expected to change every six months. At that time a new pattern will be put in place with $7,000 of setup costs. Each table requires 12 labour hours and 2 machine hours. Current annual sales are expected to be 2,000 units of each table at $140 each. Customer service expenses average $10 per table.
Required:
What is the life-cycle operating income?

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The Answer of Max and Marv are starting a new business venture and are in the process of evaluating their product lines. One new product, hand-made wooden tables, has incurred $30,000 in development costs. These costs are to be amortized over a three-year period, the expected product life cycle. The direct costs of each table averages $90. Other costs for making the tables are estimated at $100,000 per year. The current sales program for tables is expected to change every six months. At that time a new pattern will be put in place with $7,000 of setup costs. Each table requires 12 labour hours and 2 machine hours. Current annual sales are expected to be 2,000 units of each table at $140 each. Customer service expenses average $10 per table.
Required:
What is the life-cycle operating income?

Max and Marv Are Starting a New Business Venture and Are