Answer the following questions using the information below:
Snowy River Transformers is in the process of evaluating a new product using the following information:
∙ A new transformer has two production runs each year,each with $10 000 in set-up costs.
∙ The new transformer incurred $30 000 in development costs and is expected to be produced over the next three years.
∙ Direct costs of producing the transformers are $40 000 per run of 5000 transformers.
∙ Indirect manufacturing costs charged to each run are $45 000.
∙ Destination charges for each transformer average $1.00.
∙ Customer service expenses average $0.20 per transformer.
∙ The transformers are selling for $25 the first year and will increase by $3 each year thereafter.
∙ Sales units equal production units each year.
-What are estimated life-cycle revenues?
A)$310 000
B)$250 000
C)$280 000
D)$840 000

Question

Quizplus · Accepted Answer

The estimated life-cycle revenues are calculated by adding the revenues for each year over the three-year period. In the first year, each transformer sells for $25, and there are two production runs of 5000 transformers each, totaling 10,000 transformers. Therefore, the revenue for the first year is $25 * 10,000 = $250,000. In the second year, the price increases by $3, making each transformer sell for $28. The revenue for the second year is $28 * 10,000 = $280,000. In the third year, the price increases by another $3, making each transformer sell for $31. The revenue for the third year is $31 * 10,000 = $310,000. Adding these together, the total estimated life-cycle revenues are $250,000 + $280,000 + $310,000 = $840,000.

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