Franklin Company Is in the Process of Evaluating a New

question 96

Essay

Franklin Company is in the process of evaluating a new part using the following information.
-Part SLC2002 has one production run each month, each with $18,000 in setup costs.
-Part SLC2002 incurred $40,000 in development costs and is expected to be produced over the next three years.
-Direct costs of producing Part SLC2002 are $56,000 per run of 24,000 parts each.
-Indirect manufacturing costs charged to each run are $88,000.
-Destination charges for each run average $15,000.
-Part SLC2002 is selling for $14.00 in the United States and $25 in all other countries. Sales are one-third domestic and two-thirds exported.
-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?

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Definitions:

Order Policy

Guidelines established by a company to determine minimum inventory levels, reorder points, and order quantities to manage inventory effectively.

Basic EOQ Model

The Economic Order Quantity model, a formula used to determine the optimal quantity of inventory to order, minimizing total inventory costs.

Ordering Cost

Expenses incurred in placing and processing orders for products or materials, including administrative costs and the cost of receiving and inspecting the items.