Reference no: EM132478991

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

Point 1: Every six months a new lamp pattern will be put into production. Each new pattern will require $11,200 in setup costs.

Point 2: The lamp product line incurred $48,000 in development costs and is expected to be produced over the next six years.

Point 3: Direct costs of producing the lamps average $144 each. Each lamp requires 12 labour-hours and 2 machine-hours.

Point 4: Indirect manufacturing costs are estimated at $160,000 per year.

Point 5: Customer service expenses average $16 per lamp.

Point 6: Current sales are expected to be 2,000 units of each lamp pattern. Each lamp sells for $224.

Point 7: Sales units equal production units each year.

Required

Question 1: What are the estimated life-cycle revenues?

Question 2: What is the estimated life-cycle operating income if the product life cycle is one year?