ACCA Applied Skills · Performance Management · Life-cycle costing
A company is developing a new product with the following expected data: pre-launch design and development cost $240,000; production of 50,000 units over the product's life at $12 per unit; marketing and distribution $3 per unit; end-of-life decommissioning cost $30,000. What is the expected life-cycle cost per unit?
Life-cycle cost per unit is total lifetime cost divided by lifetime volume, including pre-launch and end-of-life costs. Here the total is $1,020,000 over 50,000 units, which gives $20.40 per unit.
- A$15.00
- B$20.40Correct
- C$19.80
- D$20.00
Explanation
Total cost = 240,000 + 600,000 + 150,000 + 30,000 = 1,020,000. Dividing by 50,000 units gives $20.40. Check: 12 + 3 = 15 variable, plus (240,000 + 30,000)/50,000 = 5.40, total 20.40. $15.00 ignores pre-launch and end-of-life costs, which life-cycle costing includes.
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