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Hi Sir can you help me with this question
The following statements have been made about lifecycle costing
(1) Lifecycle costing is needed in order to plan for the maximum length of commercial life for new products.
(2) Lifecycle costing is particularly suitable manufacturer of products with long lifecycles and have significant research and development costs.
Which of the above statements is /are TRUE?
A. I only
B. II only
C. Neither I nor II
D. Both I and IIThe answer is C.
Can you help clarify this for me thank you so muchI have a question regarding lifecycle costing.pricing in lifecycle costing in particular.when setting a price for a product how are design and development costs treated?
In some questions in the kit it adds up all the costs of the lifecycle including design and development and then divides it by the total units to be produced in the lifecycle to arrive at cost per unit and then adds up the desired profit.
There are some questions where these design and development costs are treated as sunk cost when setting a price.Nazreen:
(1) is not true – we need an estimate of the life to be able to calculate the lifecycle cost. Not the other way round 🙂
(2) is not true – it is irrelevant whether or not the lifecycle is long or short.
adi37:
Subject to anything else written in the question we would normally include all costs (including research and development) when doing lifecycle costing.
In other costing techniques (especially relevant costing) design and development costs will be sunk costs and irrelevant, if they have already been incurred.
(I assume that you are watching my free lectures – they are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.)
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