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respected sir
i am having doubts in the example as it says if the company spends more on design costs it could reduce the cost.
my doubt is if the company is spending more without increasing the output then how can it reduce the cost being cost only adding up.
maufacturing cost = $6 p.u.
design cost = $60000
end of life cost =$30000
sales = 2000 unit at 1st year then 12000 units for next 4 years = total sales 50000 units
mark up at 50% on cost
now if the company spends additional $20000 on design how to calculate maximum manufacturing cost per unit that cold be allowed if the company is to achieve the required mark upAlthough I will answer your question, in future you must ask in the “Ask the Tutor” Forum if you want me to answer – this forum is for students to help each other.
Spending more on the design might mean that we can change the design in a way that reduces the manufacturing cost. For example, suppose we make desks and had planned to use 2 square meters of wood. Maybe we can find a way of changing the design of the desk which will only use 1.95 square meters of wood. That would obviously make the cost per desk less, and it could be therefore worth spending extra money on the design.
You can find an answer to this specific question at the back of the Course Notes (see the contents page), but do ask again if the answer does not make sense to you 🙂
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