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CMA Final · Strategic Cost Management · Product Life Cycle Costing

Rohan Appliances is developing a new air purifier. Pre-launch costs are: R&D Rs 18 lakh and design Rs 6 lakh. Over the product's life, production will cost Rs 90 lakh, marketing and distribution Rs 30 lakh, and customer service and withdrawal Rs 12 lakh. Total lifetime units are 6,000. What is the life cycle cost per unit?

Life cycle cost per unit is Rs 2,600. Total lifetime cost including R&D, design, production, marketing and service is Rs 156 lakh, and dividing by 6,000 units gives Rs 2,600. Leaving out upstream or downstream costs would understate the true cost over the whole life.

  1. ARs 2,000
  2. BRs 2,600
  3. CRs 2,800Correct
  4. DRs 2,300

Explanation

Life cycle cost covers all costs from R&D to withdrawal: 18+6+90+30+12 = Rs 156 lakh. Dividing by 6,000 units gives Rs 2,600 per unit. Rs 2,000 omits the pre-launch R&D and design costs and Rs 2,300 leaves out the service costs, so both understate the life cycle cost.

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