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Hi Sir,
I have a question that I cannot seem to understand:
Company B is about to begin 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 is seeking to make a mark-up of 40% product cost. It is estimated that the lifetime costs of the products wil 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 $15000 on design, manufacturing costs/unit could be reduced?
What is the life cycle cost?
Answer: Original life cycle cost per unit = (43,000+(20,000 x $15) + 30,000)/15,000 = $24.87
My question is why do we have to divide by the 15,000? I do not see the rationale behind this. Could you please explain.
Kind regards,
YazanI know that this is the Ask Tutor forum, so forgive me for answering but it’s a Kaplan printing error in the exam kit – it’s listed on the Errata sheet. Correct answer is divide by 20,000 units giving cost per unit of $18.65.
You’re not going mad!
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