Answer the following questions using the information below:
Jamal, Kareem, Rashid and Associates are in the process of evaluating its new client services for the business consulting division.
• Estate Planning, a new service, incurred $100,000 in development costs and employee training.
• The direct costs of providing this service, which is all labor, averages $27 per hour.
• Other costs for this service are estimated at $400,000 per year.
• The current program for estate planning is expected to last for two years. At that time, a new law will be in place that will require new operating guidelines for the tax consulting.
• Customer service expenses average $95 per client, with each job lasting an average of 400 hours. The current staff expects to bill 40,000 hours for each of the two years the program is in effect. Billing averages $42 per hour.
-What are estimated life-cycle revenues?
A) $1,680,000
B) $90,500
C) $3,360,000
D) $181,000

Question

Quizplus · Accepted Answer

To calculate the estimated life-cycle revenues, we need to first calculate the total revenue generated from the service. 
Total revenue = (total hours of service provided * billing rate) + customer service expenses 
Total hours of service provided = (400 hours per job * total number of jobs) 
Total number of jobs = (40,000 hours per year * 2 years) / 400 hours per job = 200 jobs 
Total hours of service provided = 400 hours per job * 200 jobs = 80,000 hours 
Total revenue = (80,000 hours * $42 per hour) + ($95 per client * 200 clients) 
Total revenue = $3,360,000 
Therefore, the estimated life-cycle revenues for the estate planning service are $3,360,000.

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