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Anyone could help please:
In the lecture notes Chapter 3 example 1 – I am a bit confused about the answer “the maximum manufacturing cost per unit would have to fall to $4.80 per unit”
I think it should be $5.20, the reason being is that I work backwards as follows:
The maximum lifecycle cost per unit = the target cost = $7.00
the estimated productions is 50,000 units, therefore,
the total lifecycle cost = $7 x 50,000 = $ 350,000
therefore the manufacturing costs total = $350,000 – $60,000 – $30,000 = $260,000
so, the maximum manufacturing cost per unit = $260,000/50,000 units = $5.20 per unitPlease help me to understand why I am wrong for the above calculation?
Many thanksWhat you have done would be fine, except that if you read the question is says that we would have to spend an additional $20,000 on design. You have ignored this!
If you bring it in then it means that the manufacturing costs in total have to be 260,000 – 20,000 = 240,000.
So per unit it is 240,000 / 50,000 = $4.80 per unit.
Ooops! sorry for having a blind moment.
Thank you very much for the answer, John.
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