FitchburgFitchburg

Furniture Manufacturing (FFM) has been manufacturing furniture for the home for over 30 years. George Fearless, the owner, has decided he would like to manufacture an executive desk that contains space for not only a laptop dock but also an MP3 player dock. Based on his experience with furniture, he believes the desk will be a popular item for four years, and then will be obsolete because technology will have changed again. FFM expects the design phase to be very short; maybe four months. There is no R&D cost because the idea came from George, without any real research. Also, fixed production costs will not be high because FFM has excess capacity in the factory. The FFM accountants have developed the following budget for the new executive desk:

(Click to view the budget.)Requirements

		Fixed	Variable
Months 1-4	Design costs	$850,000	--
Months 5- 36	Production	$9,000	$ 190 per desk
	Marketing	2,200	--
	Distribution	2,400	$23 per desk
Months 37-52	Production	$9,000	$ 190 per desk
	Marketing	900	--
	Distribution	1,100	$25 per desk

The design cost is for the total period of four months. The fixed costs of production, marketing, and distribution are the expected costs per month. Ignore time value of money.

Requirement 1. Using the assumptions given for this requirement, if FFM prices the desks at $575 each, how much profit will FFM make in total and on average per desk? Begin by calculating the total profit FFM will make. (Enter operating losses with parentheses or a minus sign.)

Projected Life Cycle Statement of Comprehensive Income
Revenues
Variable costs:
Production
Distribution
Contribution margin
Fixed costs:
Design
Production
Marketing
Distribution
Life cycle operating income (loss)