1. A greeting card company is starting a new business venture and is in the proc
ID: 2366311 • Letter: 1
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1. A greeting card company is starting a new business venture and is in the process of evaluating its product lines. Information for one new product, traditional parchment grade cards, is as follows: o Sixteen times each year, a new card design will be put into production. Each new design will require $600 in setup costs. o The parchment grade card product line incurred $75,000 in development costs and is expected to be produced over the next four years. o Direct costs of producing the designs average $0.50 each. o Indirect manufacturing costs are estimated at $50,000 per year. o Customer service expenses average $0.10 per card. o Current sales are expected to be 2,500 units of each card design. Each card sells for $3.50. o Sales units equal production units each year Determine the following: 1. The estimated life-cycle revenues. 2. The estimated life-cycle operating income for the first year. 3. The estimated life-cycle operating income per year for the years after the first year. 4. The total estimated life-cycle operating incomeExplanation / Answer
A Greeting Cards Incorporated Production 40,000 cards Sales (40,000 x$ 3.5) $140,000 Less: Variable Costs: Direct Manufacturing $20,000 Marketing $4,000 $24,000 CM $116,000 Less: Fixed Costs Setup Costs $9,600 Development Costs $18,750 Indirect Manufacturing Costs $50,000 $78,350 Operating Income $37,650
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