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ACCA Applied Skills · Performance Management · Life-cycle costing

Kavron plc forecasts these figures for a product over its life: sales of 40,000 units at $25 each; development costs $150,000; production cost $10 per unit; marketing costs $200,000; and end-of-life costs $50,000. What is the forecast life cycle profit?

The forecast life cycle profit is $200,000. Lifetime revenue of $1,000,000 less total life cycle costs of $800,000, comprising development, production, marketing and end-of-life costs. The other figures arise from leaving out one of those cost categories.

  1. A$200,000Correct
  2. B$250,000
  3. C$350,000
  4. D$400,000

Explanation

Revenue is 40,000 × $25 = $1,000,000. Total costs are $150,000 + $400,000 + $200,000 + $50,000 = $800,000. Life cycle profit is $200,000. $250,000 omits end-of-life costs, $350,000 omits development costs, and $400,000 omits marketing costs.

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