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Company is developing new product expected to sell 20,000 units per year over the period of 5 years.
Life time cost production are:
1.) Design and development cost $50,000
2.) Manufacturing $5 per unit
3.) End of life cost $10,000Life cycle unit per cost is $8. Which I believe it arrive at the answer as:
($50,000+($5*20,000)+$10,000)= $160,000/20000 units=$8 per unitSir, my question over here is life cycle cost doesn’t mean the manufacturing cost for 5 years sales units which is (20,000 per year * 5 years)=100,000 unit * $ 5 per unit which is $500,000?
Please correct me if I am wrong. Thank you.
You are correct, and thank you.
The question had in fact been corrected and changed to selling 4,000 units a year. It seems that for some reason the correction was not uploaded 🙁
It will be uploaded now 🙂Sir, Could you please explain how to arrive to the answer.
A company operate the production process which generates a contribution of $4 per hour.Wages are paid at $7 per hour and labour are fully utilized. During busy day worker are offer to work overtime, which paid $10 per hour.However worker refused to work overtime due to industrial dispute.
The company has just received additional order which must be fulfill immediately and will require 10 hours of labour to fulfill.Relevant cost of labour is $110
When labour is taken from other work, then the relevant cost is labour plus lost contribution.
Here the labour rate is $4 per hour, the lost contribution is $7 per hour, so the relevant cost is $11 per hour. Therefore for 10 hours the cost is $110.
(For a full explanation of the logic you need to watch our free lecture on relevant costing)
The overtime rate is here of no relevance because the workers are refusing to do it 🙂
When labour is taken from other work, then the relevant cost is labour plus lost contribution.
Here the labour rate is $4 per hour, the lost contribution is $7 per hour, so the relevant cost is $11 per hour. Therefore for 10 hours the cost is $110.
(For a full explanation of the logic you need to watch our free lecture on relevant costing)
The overtime rate is here of no relevance because the workers are refusing to do it 🙂
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