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CMA Final · Strategic Cost Management · Product Life Cycle Costing

Kaveri Tech launches a device with the following life cycle estimates: R&D and design Rs 30,00,000; production cost Rs 250 per unit; marketing Rs 20,00,000; end-of-life disposal Rs 10,00,000. Lifetime volume is 40,000 units at a selling price of Rs 500 per unit. What is the lifetime profit?

Lifetime profit is Rs 40 lakh. Revenue of Rs 2 crore less production cost of Rs 1 crore and upfront, marketing and disposal costs of Rs 60 lakh leaves Rs 40 lakh. Disposal cost must be included because life cycle costing covers all stages.

  1. ARs 40,00,000Correct
  2. BRs 60,00,000
  3. CRs 50,00,000
  4. DRs 30,00,000

Explanation

Revenue = 40,000 x 500 = Rs 2,00,00,000. Production = 40,000 x 250 = Rs 1,00,00,000. Other costs = 30 + 20 + 10 = Rs 60,00,000. Profit = 200 - 100 - 60 = Rs 40 lakh. Omitting disposal cost gives Rs 50 lakh, which is wrong because disposal is part of life cycle cost.

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