Grace Greeting Cards Incorporated Is Starting a New Business Venture

Essay

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 for the first year?
c.What is the estimated life-cycle operating income per year for the years after the first year?
d.What is the total estimated life-cycle operating income?