What is the estimated life-cycle operating income for the first year?

ACCOUNTING

Multiple Choice

Bicker, Inc., is in the process of evaluating a new product using the following information.

· A new transformer has two production runs each year, each with $10,000 in setup costs.

· The new transformer incurred $30,000 in development costs and is expected to be produced over the next three years.

· Direct costs of producing the transformers are $40,000 per run of 5,000 transformers each.

· Indirect manufacturing costs charged to each run are $45,000.

· Destination charges for each transformer average $1.00.

· Customer service expenses average $0.20 per transformer.

· The transformers are selling for $25 the first year and will increase by $3 each year thereafter.

· Sales units equal production units each year.



What is the estimated life-cycle operating income for the first year?

a. $18,000

b. $20,000

c. $48,000

d. $119,000

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