ACCA Applied Skills · Performance Management · Life-cycle costing
Brontel Co expects a product to have pre-production costs (research, design and tooling) of $300,000. Variable production cost is $12 per unit. Lifetime sales are forecast at 50,000 units, and post-sale costs (warranty and disposal) are expected to total $100,000. What is the life cycle cost per unit?
The life cycle cost per unit is $20. Total life cycle cost is $300,000 pre-production plus $600,000 production plus $100,000 post-sale, giving $1,000,000, which is spread over 50,000 lifetime units. Excluding pre-production or post-sale costs would understate the unit cost.
- A$20Correct
- B$18
- C$14
- D$12
Explanation
Total life cycle cost = $300,000 + (50,000 × $12 = $600,000) + $100,000 = $1,000,000. Divided by 50,000 units, this is $20 per unit. $18 omits post-sale costs and $14 omits pre-production costs. $12 is the variable cost only.
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