Answer the following questions using the information below:
Davidson,Lindwall Associates is in the process of evaluating its new client services for the business systems consulting division.
∙ Distribution planning,a new service,incurred $250 000 in development costs.
∙ The direct costs of providing the service,which is all labour,averages $50 per hour.
∙ Other costs for this service are estimated at $300 000 per year.
∙ The current program for Distribution planning is expected to last for two years.At that time,expected new operating systems are likely to make the service non-viable.
∙ Customer service expenses average $250 per client,with each job lasting an average of 40 hours.The current staff expects to bill 15 000 hours for each of the two years the program is in effect.Billing averages $90 per hour.
-What are the estimated life-cycle revenues?
A)$2 700 000
B)$1 350 000
C)$3 000 000
D)$3 400 000

Question

Quizplus · Accepted Answer

To calculate the estimated life-cycle revenues, we need to multiply the total billable hours by the billing rate per hour and then subtract the total costs.

Total billable hours = 15,000 hours/year x 2 years = 30,000 hours 
Billing rate per hour = $90 
Direct costs for providing the service = $50/hour x 30,000 hours = $1,500,000 
Other costs for the service = $300,000 per year x 2 years = $600,000 
Development costs = $250,000

Total costs = $1,500,000 + $600,000 + $250,000 = $2,350,000

Estimated life-cycle revenues = (30,000 hours x $90) - $2,350,000 
= $2,700,000

Therefore, the answer is A) $2,700,000.

As for the best choice(s), it is not included in the information provided.

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