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A company has produced the following information for a product it is about to launch:
20X4 20X5 20X6Units 2,000 5,000 7,000
Variable production cost per unit $2.30 $1.80 $1.20
Fixed production costs $3,000 $3,500 $4,000
Variable selling cost per unit $0.50 $0.40 $0.40
Fixed selling costs $1,500 $1,600 $1,600
Administrative costs $700 $700 $700
What is the life-cycle cost per unit (to two decimal places)?
Ans: ______________GOOD DAY Sir,
The answer in the kit says 3.22.Which is correct and i also got it right, but then i do it other way what if we make the fixed production ,selling and admin cost to per unit and then add up the total per unit cost, but it sums up to 11.26 which is wrong i wanna know whats the math/concept behind it
Thank youTo calculate the life-cycle cost per unit, you must first find the total costs incurred over the entire life of the product and then divide that total by the total number of units produced over the entire life.
Here is the correct mathematical approach:
1. Calculate Total Units 2,000 + 5,000 + 7,000 = 14,000
2. Calculate Total Variable Production Costs $ 22,000
3. Calculate Total Variable Selling Costs $5,800
4. Calculate Total Fixed Costs $ 17,300
5. Calculate Total Life-cycle Cost $ 22,000 + $5,800+ $17,300 =$ 45,100
6. Calculate Life-cycle Cost per Unit $ 45,100 / 14,000 = $3.22In life-cycle costing, you must aggregate the total wealth consumed (total dollars) and spread it over the total benefit created (total units).
Simply adding the per-unit costs from different years does not make sense because the fixed costs are spread over different activity levels in each year.
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