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Lifecycle costing Questions!

Forums › ACCA Forums › ACCA PM Performance Management Forums › Lifecycle costing Questions!

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by Kim Smith.
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    Posts
  • May 18, 2018 at 12:22 pm #452664
    Faiza
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    22-SNT is a Japanese electronics giant specialising in the production of game consoles. SNT is
    planning to introduce the latest ‘next-generation’ console and range of games in the
    summer of 2015. Development of the new console is due to commence on January 1, 2015
    and SNT is currently working out at what price the new console should be sold then.
    The new console is expected to incur the following costs in the four years it will be
    developed and commercialised:
    2015 2016 2017 2018
    Consoles manufactured and sold 10,000 12,000 11,100 3,000
    R&D costs $950,000 $0 $0 $0
    Marketing costs $230,000 $120,000 $20,000 $5,000
    Production cost per console $450 $430 $290 $290
    Warranty costs per console $30 $30 $40 $45
    End of life costs $0 $0 $0 $125,000
    Using lifecycle costing, what is the cost per console?
    A $410.21
    B $417.56
    C $455.35
    D $496.62

    SNT is a Japanese electronics giant specialising in the production of game consoles. SNT is
    planning to introduce the latest ‘next-generation’ console and range of games in the
    summer of 2015. Development of the new console is due to commence on January 1, 2015
    and SNT is currently working out at what price the new console should be sold then.
    The new console is expected to incur the following costs in the four years it will be
    developed and commercialised:
    2015 2016 2017 2018
    Consoles manufactured and sold 10,000 12,000 11,100 3,000
    R&D costs $950,000 $0 $0 $0
    Marketing costs $230,000 $120,000 $20,000 $5,000
    Production cost per console $450 $430 $290 $290
    Warranty costs per console $30 $30 $40 $45
    End of life costs $0 $0 $0 $125,000
    Market research has indicated that customers will be prepared to pay an average price of
    $420 per console, but SNT’s Chief Executive believes this will not be sufficient to make
    production worthwhile.
    The Chief Executive has made the following statements:
    (1) The cost per console, calculated using lifecycle costing principles, is higher than the
    price customers are prepared to pay.
    (2) More attention to R&D costs in 2015 could reduce warranty costs in later years.
    Which of the above statements is/are true?
    A (1) only
    B (2) only
    C Neither (1) nor (2)
    D Both (1) and (2)

    My answer is coming wrong to these questions. My total costs is coming less than what it should be.

    May 18, 2018 at 1:19 pm #452673
    Kim Smith
    Keymaster
    • Topics: 133
    • Replies: 8290
    • ☆☆☆☆☆

    A full working to the answer to the first Q being C is provided in an answer justification in the Kaplan Exam Kit.

    In relation to the 2nd Q – the 2nd statement is true – if the co were to invest in the product, after the 1st year it could reduce warranty costs which are otherwise increasing each year.
    The 1st statement is true because the lifecycle cost is $455 (per the previous Q) and the average price is only $420. (This Q would be too time-consuming to be a real exam Q.)

    In real exams, ACCA has to ensure that OT items are independent of each other.

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