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(Kaplan Revision Kit Q.23)
Company B is about to being developing a new product for launch in its existing market. They have forecast sales of 20,000 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 $43,000
2. Manufacturing costs $15/unit
3. Plant decommissioning costs $30,000The 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?
A. $24.87
B. $22
C. $22.87
D. $24The answer in the Kit is given as:
“The original lifecycle cost per unit = ($43,000+(20,000*$15)+$30,000)/15,000=$24.87”
Why do we divide the costs on 15,000 here? It doesn’t make any sense to me!
It is wrong.
The answer should read:
?
23 A
The original life cycle cost per unit = ($43,000 + (20,000×$15) + $30,000)/20,000 = $18.65
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