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CMA Final · Strategic Cost Management · Product Life Cycle Costing

Kaveri Appliances expects a new mixer to sell 40,000 units over its life. Costs: R&D Rs 6,00,000, design Rs 2,00,000, production Rs 450 per unit, marketing and distribution Rs 50 per unit, and end-of-life disposal Rs 2,00,000. What is the life cycle cost per unit?

Life cycle cost per unit is Rs 525. Total life cycle cost is Rs 2,10,00,000, being variable cost of Rs 500 per unit on 40,000 units plus Rs 10,00,000 of R&D, design and disposal costs. Dividing by 40,000 units gives Rs 525.

  1. ARs 500
  2. BRs 525
  3. CRs 530Correct
  4. DRs 515

Explanation

Fixed life cycle costs = 6,00,000 + 2,00,000 + 2,00,000 = Rs 10,00,000, which is Rs 25 per unit over 40,000 units. Variable cost = 450 + 50 = Rs 500. Total = Rs 525. Check: 40,000 x 500 = 2,00,00,000 plus 10,00,000 = 2,10,00,000, divided by 40,000 = Rs 525.

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