Max and Marv Are Starting a New Business Venture and Are

question 36

Essay

Max and Marv are starting a new business venture and are in the process of evaluating their product lines.One new product, hand-made wooden tables, has incurred $30,000 in development costs.These costs are to be amortized over a three-year period, the expected product life cycle.The direct costs of each table averages $90.Other costs for making the tables are estimated at $100,000 per year.The current sales program for tables is expected to change every six months.At that time a new pattern will be put in place with $7,000 of setup costs.Each table requires 12 labour hours and 2 machine hours.Current annual sales are expected to be 2,000 units of each table at $140 each.Customer service expenses average $10 per table.Required:
What is the life-cycle operating income?

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Definitions:

Budgeted Required Production

The estimated amount of goods or services that a business plans to produce in a specific period, as determined by budgeting processes.

Cash Disbursements

The actual money or cash outflows paid out by a business, typically recorded in a cash disbursement journal.

Merchandise Purchases

The acquisition of goods for sale, usually finished goods, by a retail or wholesale business.

Budgeted Cost

An estimate of the financial cost for items, production, or projects planned in the future.