An understanding of life cycle costs can lead to a

135. An understanding of life-cycle costs can lead to:
a. additional costs during the manufacturing cycle
b. less need for evaluation of the competition
c. cost effective product designs that are easier to service
d. mutually beneficial relationships between buyers and sellers
Answer : c Difficulty : 2 Objective : 6
Terms to Learn : life-cycle costing
136. Life-cycle budgeting is particularly important when:
Difficulty : 3 Objective : 6
Terms to Learn : life-cycle budgeting
137. Life-cycle budgeting and life-cycle costing help highlight:
Difficulty : 3 Objective : 6
Terms to Learn : life-cycle costing, life-cycle budgeting
138. Life-cycle budgeting:
Difficulty : 2 Objective : 6
Terms to Learn : life-cycle budgeting
139. Customer life-cycle costs are the:
a. costs incurred by the selling company to satisfy the customer
b. costs to the customer for buying and using a product
c. same as the selling life-cycle prices
d. replacement costs of using a product or service
Answer : b Difficulty : 1 Objective : 6
Terms to Learn : customer life-cycle costs
12-31

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 140 THROUGH 142:
Bicker, 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 $10,000 in setup
costs.
• The new transformer incurred $30,000 in development costs and is expected to be
produced over the next three years.
•
Direct costs of producing the transformers are $40,000 per run of 5,000
transformers each.
• Indirect manufacturing costs charged to each run are $45,000.
• Destination charges for each transformer average $1.00.
• Customer service expenses average $0.20 per transformer.
•
The transformers are selling for $25 the first year and will increase by $3 each year
thereafter.
• Sales units equal production units each year.
140. What are estimated life-cycle revenues?
Difficulty : 2 Objective : 6
Terms to Learn : life-cycle costing, life-cycle budgeting
First year (5,000 x 2 runs x $25) $250,000
Second year (5,000 x 2 x $28) 280,000
Third year (5,000 x 2 x $31) 310,000
Total $840,000