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Selfie Co uses life-cycle costing. It is currently planning to launch a new technologically advanced mobile phone selfie stick called Pulse. Pulse is expected expected to be sold 500000 units over its life
The following information relates to Pulse:
Research and development cost $500,000
Market launch cost $200,000
Marketing expense (over three years) $1.000000
Average manufacturing cost. $12 per unit
Units requiring rework under warranty 20% of total units so per unit
Average warranty cost $8 per unitBased on the above information, a life-cycle cost of $17 per unit of Pulse has been accurately calculated.
Selfie Co proposes to spend an additional $544,000 on marketing Pulse to improve product visibility.
if the additional marketing spend is undertaken, how many EXTRA whole units of Pulse will Selfie Co need to sell so that the life-cycle cost remains at $17 per unit?
• 32,000
• 27,200
• 160,000
• 40,000
I got the answer 32000
but little bit confused about warranty cost
Can you tell what to do
and whats the final answer am I correct or wrongYou are correct:
Warranty costs are 20% of total units 100,000 units at $8 per unit.So it is:
500,000 + 200,000 + 1,000,000 + 6,000,000 + 800,000 = 8,500,000But then extra marketing + 544,000 = 9,044,000
So divide 9,044,000 by 17 lifecycle cost
This means 532,000 with an expectation to sell 500000 units over its life
Then the increase is 32000
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