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.

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

$162,500

$206,250

$(48,750)

$200,250

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

$206,250

$(43,750)

$(87,500)

$157,500