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CMA Final · Strategic Cost Management · Product Life Cycle Costing

Kaveri Appliances plans a product with these life-cycle data: R&D and design Rs 6,00,000; lifetime output 40,000 units; variable production and selling cost Rs 150 per unit; end-of-life disposal and decommissioning cost Rs 2,00,000; lifetime warranty service cost Rs 4,00,000. Ignoring the time value of money, what is the life cycle cost per unit?

Total life cycle cost is Rs 72,00,000, being R&D 6,00,000, variable cost 60,00,000, disposal 2,00,000 and warranty 4,00,000. Dividing by 40,000 lifetime units gives Rs 180 per unit. Omitting the disposal cost would understate the figure at Rs 175.

  1. ARs 150.00
  2. BRs 180.00Correct
  3. CRs 175.00
  4. DRs 330.00

Explanation

Total = 6,00,000 + (40,000 x 150 = 60,00,000) + 2,00,000 + 4,00,000 = 72,00,000. Divided by 40,000 units gives Rs 180. Rs 175 omits the disposal cost, being 70,00,000/40,000 is actually Rs 175 (omitting the Rs 2,00,000 disposal).

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