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Hi,
I don’t understand why this statement below is wrong:
“The high costs of (for example) research, design and marketing in the early stages in a product’s life cycle necessitate a high initial selling price”
And, why is this statement TRUE? What does it mean?
“Traditional capital budgeting techniques do not attempt to minimise the costs or maximise the revenues over the product life cycle”
If the selling price is high initially then we are likely to have problems making any sales.
The whole point of life-cycle costing is to look at the whole life of the product and therefore be prepared to lose money in the early years in the knowledge that we will be profitable later.
Traditional techniques tend to look more short-term than over the whole lifecycle.
Do watch my free lectures on life-cycle costing.
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