Answer the Following Questions Using the Information Below

question 136

Multiple Choice

Answer the following questions using the information below:
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 $250,000 in development costs.
• The direct costs of providing the service, which is all labor, averages $50 per hour.
• Other costs for this service are estimated at $300,000 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 $250 per client, with each job lasting an average of 40 hours. The current staff expects to bill 15,000 hours for each of the two years the program is in effect. Billing averages $90 per hour.
-What is the estimated life-cycle operating income for the first year?

• A) $206,250
• B) $162,500
• C) $(43,750)
• D) $43,750

---

Definitions:

Accounts Receivable Balance

The sum total of money that customers are in debt to a company for its goods or services that have been utilized but not paid for.

Firm's Cash Cycle

The length of time it takes a company to convert its investments in inventory and other resources into cash flows from sales.

Cash Budgeting

The process of forecasting future financial positions based on anticipated cash receipts and disbursements.