Life cycle costing question

Hi John,

I got confused with question n.23 from Kaplan exam kit:

Company is about the develop a new product for launch in existing market. The have forecast sales of 20,000 units and the marketing dept suggest selling price of $43/unit. The company seeks to make a mark up of 40% product cost. It is estimated that the lifetime costs of the product will be

– design and development costs $43,000
– manufacturing $15/unit
-plan decommissioning costs $30,000

The company estimates that if it were to spend an additional $15,000 on design, manufacturing costs/unit could be reduced. What is the life cycle cost?

First of all it is a bit confusing how all of these info could be used (selling price, mark up) and how to calculate reduced manufacturing costs/unit after the additional 15k investment?

What I have done:

margin=$43 * 40/140 = $ 12,29
cost per unit may be up to = $43 – $12,29 = $30,71

D&D costs per unit = $43,000/20,000 = $2.15
Manuf. costs per unit = $15
PDcosts per unit = $ 30,000 / 20,000 = $1.5
Total costs per unit = $2.15 + $15 + $1.5 = $18,65
D&D per unit with additional 15k = ($43,000+$15,000)/20,000 = $2,9, now total is = $ 19,4.

What the solutions are proposing is: Lifecycle cost per unit = ($43,000+(20,000*$15)+$30,000)/15,000 = $24,87
Why are they dividing by 15,000, what am I missing here???

Thanks a lot
Rgs
Marko