The following statements have been made about life cycle costing.
(1) Life cycle costing is needed in order to plan for the maximum length of commercial life for new products.
(2) Life cycle costing is particularly suited to businesses that manufacture products with long life cycles and who have significant research and development costs.
Which of the above statements is/are true?
This question appeared in the June 2015 exam.
The following statements have been made about life cycle costing:
(1) It focuses on the short-term by identifying costs at the beginning of a product's life cycle
(2) It identifies all costs which arise in relation to the product each year and then calculates the product's profitability on an annual basis
(3) It accumulates a product's costs over its whole life time and works out the overall profitability of a product
(4) It allocates costs to each stage of a product's life cycle and writes them off at the end of each stage
Which of the above statements is/are correct?
A manufacturing company which produces a range of products has developed a budget for the life-cycle of a new product, P. The information in the following table relates exclusively to product P:
Lifetime total Per unit
Design costs $800,000
Direct manufacturing costs $20
Depreciation costs $500,000
Decommissioning costs $20,000
Machine hours 4
Production and sales units 300,000
The company’s total fixed production overheads are budgeted to be $72 million each year and total machine hours are budgeted to be 96 million hours. The company absorbs overheads on a machine hour basis.
What is the budgeted life-cycle cost per unit for product P?
A company has produced the following information for a product it is about to launch:
Units 2,000 5,000 7,000
Variable production cost per unit $2.30 $1.80 $1.20
Fixed production costs $3,000 $3,500 $4,000
Variable selling cost per unit $0.50 $0.40 $0.40
Fixed selling costs $1,500 $1,600 $1,600
Administrative costs $700 $700 $700
What is the life-cycle cost per unit?