Estimated life-cycle operating income
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The Myles Time Corporation is starting up a new division and is evaluating its product lines. Information for one new product, working stopwatches, is as follows:
Four times each year (once a quarter), a new stopwatch model will be put into production. Each new model will require $1,150 in setup costs.
The working stopwatches product line incurred $43,859 in development costs and is expected to be produced over the next three years.
Direct costs of producing the models average $1.25 each.
Indirect manufacturing costs are estimated at $82,000 per year.
Customer service expenses average $0.05 per watch.
Current sales are expected to be 3,700 units of each model. Each watch sells for $9.95.
Sales units equal production units each year.
What is the estimated life-cycle operating income for the first year?
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This solution helps with a problem involving estimated life cycles in an operating income.
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In life-cycle costing we take into account all the costs incurred during the life cycle of the product. The costs on a per year basis ...
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