Reference no: EM131739716

Question: Purple Trees manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $240 per table, consisting of 60% variable costs and 40% fixed costs. Watch StartUpMe's 9 Pricing Rules for Entrepreneurs video that provides startups with guidance on one of the most critical strategic decisions they will make -- pricing their product or service. This is a video version of a blog post at StartUpMe's website. There's more information for entrepreneurs at www.startupme.com. This video will help you complete your assignment.

Saul and Solomon are starting a new business venture and are in the process of evaluating their product lines. Information for one new product, hand-made lamps, is as follows:

· Every six months a new lamp pattern will be put into production. Each new pattern will require $11,200 in setup costs.

· The lamp product line incurred $40,000 in development costs and is expected to be produced over the next six years.

· Direct costs of producing the lamps average $144 each. Each lamp requires 12 labor-hours and 2 machine-hours.

· Indirect manufacturing costs are estimated at $168,000 per year.

· Customer service expenses average $16 per lamp.

· Current sales are expected to be 2,000 units of each lamp pattern. Each lamp sells for $250.

· Sales units equal production units each year.

Required: a. What are the estimated life-cycle revenues?

b. What is the estimated life-cycle operating income for the first year?