- This topic has 3 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Company B is about to begin developing a new product for launch in its existing market. They have forecast sales of 20000 units and the marketing department suggest a 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 as follows:
1 design and development costs $43000
2 Manufacturing costs $15/unit
3 Plant decommissioning costs $30000The company estimates that if it were to spend an additional $15000 on design, manufacturing costs/unit could be reduced
What is the lifecycle cost?
A 24.87
B 22
C 22.87
D 24#according to my knowledge, i calculated as
43000+15*20000+30000+15000=388000
388000/20000= 19.4But in answers its is
43000+15*20000+30000=373000
373000/15000= 24.87I dont understand this concept
There is no additional concept! You have not read the question properly.
It does not say that they are spending the extra $15,000. It says that if they spend it then the manufacturing costs will be lower, and will not therefore be $15 per unit.
So for this question, the $15,000 is not relevant at all.I think you will find that there is a second question on the same information that asks by how much the manufacturing costs would need to reduce in order for it to be worth spending the extra $15,000.
I do suggest that you watch my free lectures on this, because I work through a very similar example in the lecture.
(The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.)Thank you so much. I am going to watch your lectures on this topic and practice the examples too.
- The topic ‘Lifecycle costing’ is closed to new replies.