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Hello Sir!
What is the reason behind excluding the sunk and opportunity costs when calculating a life cycle costs of a product?Sunk costs have been incurred whether or not the product is produced and are therefore always irrelevant.
Opportunity costs are only ever relevant if the new product is affecting existing costs and/or revenues. With life cycle costing we are looking at the new product in isolation.
@johnmoffat said:
Sunk costs have been incurred whether or not the product is produced and are therefore always irrelevant.Opportunity costs are only ever relevant if the new product is affecting existing costs and/or revenues. With life cycle costing we are looking at the new product in isolation.
ok i am all clear on the opportunity costs
But if sunk costs are always irrelevant then why the examiner in june 2016 question called Shoe Co included the development costs of $5.6 m when he/she calculated the life cycle costs ?To be honest, it is slightly arguable with regard to the $20,000 salary cost. The examiner has included it because it was a cost of the particular product. It was only however 1/2 mark out of the total of 10 marks.
@johnmoffat said:
To be honest, it is slightly arguable with regard to the $20,000 salary cost. The examiner has included it because it was a cost of the particular product. It was only however 1/2 mark out of the total of 10 marks.So finally it should be accepted that the sunk costs should be included in the life cycle costing of a product because we are trying to calculate all sorts of cost incurred from cradle to grave.
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