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 $90 per hour.
-What is the estimated life-cycle operating profit for both years combined?
A)$(87 500)
B)$162 500
C)$(43 750)
D)$206 250

Question

Quizplus · Accepted Answer

The estimated life-cycle operating profit for both years combined is calculated as follows:- Revenue: 15,000 hours * $90/hour * 2 years = $2,700,000- Direct costs: 15,000 hours * $50/hour * 2 years = $1,500,000- Other costs: $300,000/year * 2 years = $600,000- Customer service expenses: ($250/client) * (15,000 hours / 40 hours/client) * 2 years = $187,500- Development costs: $250,000Total profit = Revenue - Direct costs - Other costs - Customer service expenses - Development costs = $2,700,000 - $1,500,000 - $600,000 - $187,500 - $250,000 = $162,500

Answer the Following Questions Using the Information Below