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ruskin ruskin
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Posts: 664
4 years ago
Henderson Company is in the process of evaluating a new part using the following information.

∙   Part SLC2002 has one production run each month, each with $16,000 in setup costs.
∙   Part SLC2002 incurred $40,000 in development costs and is expected to be produced over the next three years.
∙   Direct costs of producing Part SLC2002 are $56,000 per run of 24,000 parts each.
∙   Indirect manufacturing costs charged to each run are $88,000.
∙   Destination charges for each run average $18,000.
∙   Part SLC2002 is selling for $12.50 in the Canada and $25 in all other countries. Sales are one-third domestic and two-thirds exported.
∙   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 if the product life cycle is one year?
Textbook 

Cost Accounting: A Managerial Emphasis, Canadian Edition


Edition: 7th
Authors:
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GarretAGarretA
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Top Poster
Posts: 669
4 years ago
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More questions for this book are available here
a.
Domestic ($12.50 × 12 months × 24,000 × 3 yrs. × 1/3)      $3,600,000
Export ($25 × 12 months × 24,000 × 3 yrs. × 2/3)      14,400,000

Estimated life-cycle revenues      $18,000,000

b.
Sales
   Domestic ($12.50 × 12 months × 24,000 × 1/3)      $1,200,000
   Export ($25 × 12 months × 24,000 × 2/3)       4,800,000

   Total Sales          $6,000,000

Costs:
   Development costs   $40,000
    Setup costs (12 × $16,000)   192,000
   Direct manufacturing costs (12 × $56,000)   672,000
   Indirect manufacturing costs (12 × $88,000)   1,056,000
    Destination costs (12 × $18,000)   216,000   2,176,000

Estimated life-cycle operating income, first year      $3,824,000
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