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

ACCOUNTING

Multiple Choice

Neises, White, Granberry and Associates are in the process of evaluating its new client services for the business consulting division.

· Estate Planning, a new service, incurred $600,000 in development costs and employee training.

· The direct costs of providing this service, which is all labor, averages $100 per hour.

· Other costs for this service are estimated at $2,000,000 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 $400 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 $140 per hour.



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

a. $(1,480,000)

b. $(1,400,000)

c. $3,200,000

d. $11,200,000

Click here for the SOLUTION