Question 4.4 Celebration 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 What are the estimated life-cycle revenues? What is the estimated life-cycle operating income if the product life cycle is one year? 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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Question 4.4

Celebration 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

What are the estimated life-cycle revenues?
What is the estimated life-cycle operating income if the product life cycle is one year?
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?
What is the total estimated life-cycle operating income?

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