Life cycle costing (part 2) – ACCA Performance Management (PM)
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Do you mean that actually the element of the target cost involving all costs across the life cycle of the product, instead of being limited to production cost only?
Yes 馃檪
Can you please elaborate on the cost gap and why it wouldn’t meet the required profit levels using calculation?
Question C; I calculated Manufacturing cost per unit $4.8 per unit. Here’s how I did it;
Total lifecycle costs ; Design 80,000 + End life costs 30,000 + Manufacturing cost per unit * 50000 = x (X means Total lifecycle cost)
X divide by 50,000 = $7 ($7 is the Required Lifecycle cost per unit which removes the Cost gap of 0.8).
Now I want to calculate Total lifecycle costs as Units * Lifecycle cost per unit ( 50,000 units * $7 : $350,000 )
this amount ($350,000) consists of 80,000 of Design, 30,000 of end life costs and $240,000 of manufacturing costs. I calculated the $240,000 using balancing figure.
Manufacturing cost per unit : $240,000 divide by 50,000 units = $4.8 per unit.
cost per unit is a variable cost so we have to first allocate fixed costs and then decide for the variable cost. if you focus on question in first part it says that desirable cost is 50000*7=350000. so this is the max we can spend to produce the product. after allocating fixed costs we are left with 240000. and this is the amount we have to allocate to the cost per unit as our max variable cost.
just basics we cant change fixed cost so have to work on our variable costs to reduce cost.