Knowledge Transfer Associates Is in the Process of Evaluating Its

question 12

Multiple Choice

Knowledge Transfer Associates is in the process of evaluating its new client services for the business systems consulting division.
-Server Planning, a new service, incurred $280,000 in development costs.
-The direct costs of providing the service, which is all labor, averages $70 per hour.
-Other costs for this service are estimated at $350,000 per year.
-The current program for server planning is expected to last for two years. At that time, expected new operating systems are likely to make the service non viable.
-Customer service expenses average $350 per client, with each job lasting an average of 20 hours. The current staff expects to bill 7900 hours for each of the two years the program is in effect. Billing averages $100 per hour.
What is the estimated life-cycle operating income for the first year?

• A) -$251,250
• B) -$782,500
• C) -$531,250
• D) $531,250

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Definitions:

Net Income

The residual financial benefit a company experiences after expenses and taxes are subtracted from its income.

Fiscal Year

A 12-month period used for accounting and financial reporting purposes, which may or may not align with the calendar year.

Rent in Advance

Payment made for a rental property or equipment before the period it covers, usually as a security measure or requirement by the landlord.

Tenant Paid

A term indicating that a tenant is responsible for certain payments, such as utilities or maintenance fees, in addition to rent.