Bicker, Inc., is in the process of evaluating a new product using the following information:
A new transformer has two production runs each year, each with $10,000 in setup costs.
The new transformer incurred $30,000 in development costs and is expected to be produced over the next three years.
Direct costs of producing the transformers are $40,000 per run of 5,000 transformers each.
Indirect manufacturing costs charged to each run are $45,000.
Destination charges for each transformer average $1.00.
Customer service expenses average $0.20 per transformer.
The transformers are selling for $25 the first year and will increase by $3 each year thereafter.
Sales units equal production units each year.
Required:
a. What are the estimated life-cycle revenues?
b. What is the estimated life-cycle operating income if the product life cycle is one year?

Question

Bicker, Inc., is in the process of evaluating a new product using the following information:
  A new transformer has two production runs each year, each with $10,000 in setup costs.
  The new transformer incurred $30,000 in development costs and is expected to be produced over the next three years.
  Direct costs of producing the transformers are $40,000 per run of 5,000 transformers each.
  Indirect manufacturing costs charged to each run are $45,000.
  Destination charges for each transformer average $1.00.
  Customer service expenses average $0.20 per transformer.
  The transformers are selling for $25 the first year and will increase by $3 each year thereafter.
  Sales units equal production units each year.
Required:
a. What are the estimated life-cycle revenues?
b. What is the estimated life-cycle operating income if the product life cycle is one year?

Quizplus · Accepted Answer

The Answer of Bicker, Inc., is in the process of evaluating a new product using the following information:
  A new transformer has two production runs each year, each with $10,000 in setup costs.
  The new transformer incurred $30,000 in development costs and is expected to be produced over the next three years.
  Direct costs of producing the transformers are $40,000 per run of 5,000 transformers each.
  Indirect manufacturing costs charged to each run are $45,000.
  Destination charges for each transformer average $1.00.
  Customer service expenses average $0.20 per transformer.
  The transformers are selling for $25 the first year and will increase by $3 each year thereafter.
  Sales units equal production units each year.
Required:
a. What are the estimated life-cycle revenues?
b. What is the estimated life-cycle operating income if the product life cycle is one year?