Expo Manufacturing Inc

question 207

Multiple Choice

Expo Manufacturing Inc., is in the process of evaluating a new product using the following information:
-A new transformer has three production runs each year, each with $15,000 in setup costs.
-The new transformer incurred $45,000 in development costs and is expected to be produced over the next three years.
-Direct costs of producing the transformers are $55,000 per run of 5000 transformers each.
-Indirect manufacturing costs charged to each run are $45,000.
-Destination charges for each transformer average $2.00.
-Customer service expenses average $0.40 per transformer.
-The transformers are selling for $20 the first year and will increase by $4 each year thereafter.
-Sales units equal production units each year.
What is the estimated life-cycle operating income for the first year?

• A) (126,000)
• B) 1,146,000
• C) 1,596,000
• D) 126,000

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Definitions:

Fixed Costs

Costs that do not vary with the level of production or sales within the short term, such as rent, salaries, and insurance premiums.

Break-Even Analysis

A financial calculation to determine the point at which revenue equals costs, indicating no profit or loss.

Variable Costs

Costs that vary in direct proportion to changes in the level of production or sales volume, such as materials and labor.

Break-Even Analysis

A calculation to determine the point at which revenue received equals the costs associated with receiving the revenue, helping businesses to identify profitability thresholds.