Question : 17) Customer life-cycle costs do not influence the prices a : 1211813

17) Customer life-cycle costs do not influence the prices a company can charge for its products.

18) Managing environmental costs is an example of life-cycle costing and value engineering.

19) Life-cycle budgeting estimates the costs and revenues attributed to a product from its initial R&D through production of a prototype product.

20) Environmental costs that are incurred over several years of the product’s life cycle are often locked in at the product- and process-design stage.

21) 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 United States 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 for the first year?

22) Saul and Solomon are starting a new business venture and are in the process of evaluating their product lines. Information for one new product, hand-made lamps, is as follows:

•Every six months a new lamp pattern will be put into production. Each new pattern will require $11,200 in setup costs.

•The lamp product line incurred $40,000 in development costs and is expected to be produced over the next six years.

•Direct costs of producing the lamps average $144 each. Each lamp requires 12 labor-hours and 2 machine-hours.

•Indirect manufacturing costs are estimated at $168,000 per year.

•Customer service expenses average $16 per lamp.

•Current sales are expected to be 2,000 units of each lamp pattern. Each lamp sells for $250.

•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?

23) 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 $600 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 $3.50.

•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?

24) Ski Valet provides materials that let people teach themselves how to snow ski. It has six different skill-level programs. Each one includes visual and audio learning aids along with a workbook that can be submitted to the company for grading and evaluation purposes, if the person so desires.

The accounting system of Ski Valet is very traditional in its reporting functions with the calendar year being the company’s fiscal year. It includes an abundance of information that can be used for various reporting purposes.

The company has found that any new idea soon runs its course with an effective life of about three years. Therefore, the company is always in the development stage of some new program. Program development requires experts in the area to provide the know-how of the item being developed and a development team that puts together the video, audio, and workbook materials. The actual costs of reproducing the packages are relatively inexpensive when compared to the development costs.

Required:

How might product life-cycle budgeting aid the company in improving its overall operations?