Question -
Mercy Greeting Cards Incorporated is starting a new business venture and is 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 $100 in setup costs.
- The parchment grade card product line incurred $75,000 in development costs and is expected to be produced over the next 4 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.
What is the total estimated life-cycle operating income?