Answer the Following Questions Using the Information Below

question 91

Multiple Choice

Answer the following questions using the information below:
Purple Purpose Inc., is in the process of evaluating a new product using the following information:
• A new transformer has two production runs each year, each with $10,000 in setup costs.
• The new transformer incurred $30,000 in development costs and is expected to be produced over the next three years.
• Direct costs of producing the transformers are $40,000 per run of 4,500 transformers each.
• Indirect manufacturing costs charged to each run are $45,000.
• Destination charges for each transformer average $1.00.
• Customer service expenses average $0.20 per transformer.
• The transformers are selling for $25 the first year and will increase by $3 each year thereafter.
• Sales units equal production units each year.
-What is the estimated life-cycle operating income for the first year?

• A) ($5,800)
• B) (2,600)
• C) 2,600
• D) 5,800

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Definitions:

Current Ratio

A financial metric that measures a company's ability to cover its short-term obligations with its short-term assets, indicating liquidity.

Stockholders' Equity

The portion of a company's assets that belongs to its shareholders after liabilities have been subtracted.

Current Assets

Current assets are short-term, liquid assets that a company owns and are expected to be converted into cash, sold, or consumed within one year or within a business's operating cycle, whichever is longer.

Acid-Test Ratio

A financial metric that measures a company's ability to pay its short-term liabilities with its quick assets (cash, marketable securities, and receivables).