Reference no: EM132762657

Knowledge Transfer Associates is in the process of evaluating its new client services for the business systems consulting division.

• Server Planning, a new service, incurred $255,000 in development costs.
• The direct costs of providing the service, which is all labor, averages $50 per hour.
• Other costs for this service are estimated at $300,000 per year.
• The current program for server planning is expected to last for two years. At that time, expected new operating systems are likely to make the service non viable.
• Customer service expenses average $250 per client, with each job lasting an average of 40 hours.
• The current staff expects to bill 15,000 hours for each of the two years the program is in effect. Billing averages $90 per hour.

Problem 1) What is the estimated life-cycle operating income for the second year?

Option 1: $162,500

Option 2: $206,250

Option 3: $(48,750)

Option 4: $200,250

Problem 2) What is the estimated life-cycle operating income for both years combined?

Option 1: $206,250

Option 2: $(43,750)

Option 3:  $(87,500)

Option 4: $157,500