Saul and Solomon Are Starting a New Business Venture and Are

Essay

Saul and Solomon are starting a new business venture and are in the process of evaluating their product lines.Information for one new product,hand-made lamps,is as follows:
• Every six months a new lamp pattern will be put into production.Each new pattern will require $11,200 in setup costs.
• The lamp product line incurred $40,000 in development costs and is expected to be produced over the next six years.
• Direct costs of producing the lamps average $144 each.Each lamp requires 12 labor-hours and 2 machine-hours.
• Indirect manufacturing costs are estimated at $168,000 per year.
• Customer service expenses average $16 per lamp.
• Current sales are expected to be 2,000 units of each lamp pattern.Each lamp sells for $250.
• 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 for the first year?