Question 1
An understanding of life-cycle costs can lead to which of the following?
◦ additional costs during the manufacturing cycle
◦ less need for evaluation of the competition
◦ the accumulation of information for strategically evaluating pricing decisions
◦ mutually beneficial relationships between buyers and sellers
Question 2
Expo Manufacturing Inc., is in the process of evaluating a new product using the following information:
∙ A new transformer has three production runs each year, each with $14,000 in setup costs.
∙ The new transformer incurred $50,000 in development costs and is expected to be produced over the next three years.
∙ Direct costs of producing the transformers are $55,000 per run of 5100 transformers each.
∙ Indirect manufacturing costs charged to each run are $55,000.
∙ Destination charges for each transformer average $4.00.
∙ Customer service expenses average $0.20 per transformer.
∙ The transformers are selling for $40 the first year and will increase by $2 each year thereafter.
∙ Sales units equal production units each year.
What are estimated life-cycle revenues?
◦ $612,000
◦ $1,254,600
◦ $1,897,200
◦ $1,927,800
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