Grace Greeting Cards Incorporated is starting a new business venture and are in the process of evaluating its product lines. Information for one new product, traditional parchment grade cards, is as follows:
Sixteen times each year, a new card design will be put into production. Each new design will require $600 in setup costs.
The parchment grade card product line incurred $75,000 in development costs and is expected to be produced over the next four years.
Direct costs of producing the designs average $0.50 each.
Indirect manufacturing costs are estimated at $50,000 per year.
Customer service expenses average $0.10 per card.
Current sales are expected to be 2,500 units of each card design. Each card sells for $3.50.
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?
c. What is the estimated life-cycle operating income per year for the years after the first year if all of the development costs are charged to the first year?
d. What is the total estimated life-cycle operating income?

Question

Grace Greeting Cards Incorporated is starting a new business venture and are in the process of evaluating its product lines. Information for one new product, traditional parchment grade cards, is as follows:
  Sixteen times each year, a new card design will be put into production. Each new design will require $600 in setup costs.
  The parchment grade card product line incurred $75,000 in development costs and is expected to be produced over the next four years.
  Direct costs of producing the designs average $0.50 each.
  Indirect manufacturing costs are estimated at $50,000 per year.
  Customer service expenses average $0.10 per card.
 Current sales are expected to be 2,500 units of each card design. Each card sells for $3.50.
 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?
c. What is the estimated life-cycle operating income per year for the years after the first year if all of the development costs are charged to the first year?
d. What is the total estimated life-cycle operating income?

Quizplus · Accepted Answer

The Answer of Grace Greeting Cards Incorporated is starting a new business venture and are in the process of evaluating its product lines. Information for one new product, traditional parchment grade cards, is as follows:
  Sixteen times each year, a new card design will be put into production. Each new design will require $600 in setup costs.
  The parchment grade card product line incurred $75,000 in development costs and is expected to be produced over the next four years.
  Direct costs of producing the designs average $0.50 each.
  Indirect manufacturing costs are estimated at $50,000 per year.
  Customer service expenses average $0.10 per card.
 Current sales are expected to be 2,500 units of each card design. Each card sells for $3.50.
 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?
c. What is the estimated life-cycle operating income per year for the years after the first year if all of the development costs are charged to the first year?
d. What is the total estimated life-cycle operating income?

Grace Greeting Cards Incorporated Is Starting a New Business Venture