Grace Greeting Cards Incorporated is starting a new business venture and are in the process of evaluating its product lines. Information for one new product, traditional parchment grade cards, is as follows:
∙ Sixteen times each year, a new card design will be put into production. Each new
design will require $700 in setup costs.
∙ The parchment grade card product line incurred $75,000 in development costs and
is expected to be produced over the next four years.
∙ Direct costs of producing the designs average $0.50 each.
∙ Indirect manufacturing costs are estimated at $50,000 per year.
∙ Customer service expenses average $0.10 per card.
∙ Current sales are expected to be 2,500 units of each card design. Each card sells for $4.00.
∙ 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?
c. What is the estimated life-cycle operating income per year for the years after the first year?
d. What is the total estimated life-cycle operating income?
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