Question

Expo Manufacturing Inc., is in the process of evaluating a new product using the following information:

A New transformer has two production runs each year, each with $11,000 in setup costs.

The New transformer incurred $35,000 in development costs and is expected to e produced over the next three years.

Direct costs of producing the transformer are $40,000 per run of $6,600 transformers each.

Indirect manufacturing costs charged to each run are $115,000.

Destination charges for each transformer average $3.00.

Customer service expenses average $0.30 per transformer.

The transformers are selling for $30.00 the first year and will increase by $1.00 each year thereafter.

Sales units equal production units each year.

What is the estimated life - cycle operating income for the first three years?

The answer is supposed to be $65,920 but how do I get to that answer or is this answer incorrect?

Answer 1

Transformer produced per year = 6600*2	13,200
Operating Cost
Setup costs (11000*2)	$        22,000
Direct costs (40000*2)	$        80,000
Indirect manufacturing costs (115000*2)	$     230,000
Destination charges (13200*3)	$        39,600
Customer service expenses (13200*0.30)	$          3,960
Yearly Operating Cost	$     375,560

	Year 1	Year 2	Year 3	Total
Selling price per Unit	$             30.00	$            31.00	$            32.00
Multiply: Unit Produced per year	13,200	13,200	13,200
Sales revenue	$        396,000	$        409,200	$        422,400	$        1,227,600
Less: Yearly Operating Cost	$      (375,560)	$     (375,560)	$     (375,560)	$      (1,126,680)
Less: Development costs of New transformer				$            (35,000)
Estimated life - cycle operating income for the first three years				$              65,920