ACCA PM · Chapter 3 · Question 6 of 9
A product has a three-year life. Design costs of $300,000 are incurred before launch. Expected sales and variable costs are: Year 1, 10,000 units at $8 per unit; Year 2, 25,000 units at $9 per unit; Year 3, 15,000 units at $10 per unit. Product-specific fixed production costs are $60,000 per year, and disposal costs at the end of Year 3 are $40,000. Ignoring the time value of money, what is the life-cycle cost per unit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $19.50
Explanation
Variable costs = (10,000 x $8) + (25,000 x $9) + (15,000 x $10) = $455,000. Total life-cycle cost = $300,000 + $455,000 + (3 x $60,000) + $40,000 = $975,000. Total units = 50,000. Life-cycle cost per unit = $975,000 / 50,000 = $19.50.
More Target costing and life-cycle costing MCQs
- Q8Which of the following is a benefit of life-cycle costing compared with traditional period-based cost reporting?
- Q9During which stage of the product life cycle is a product likely to face slowing sales growth, intense price competition and a focus on…
- Q1A company plans to launch a product at a market price of $80. It requires a profit margin of 25% of the selling price. The current…
- Q2A product will sell for $90. The company requires a mark-up of 25% on cost. The current estimated cost is $75 per unit. What is the cost…
- Q3What is the starting point in the target costing process?