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CMA Final · Strategic Cost Management · Product Life Cycle Costing

Sundaram Appliances expects a new mixer to have a life-cycle of 4 years with total sales of 40,000 units. Pre-production costs: R&D ₹12,00,000 and design ₹4,00,000. Variable production and selling cost is ₹600 per unit. Lifetime fixed production and marketing costs are ₹20,00,000 and end-of-life withdrawal cost is ₹4,00,000. The life-cycle cost per unit is:

Total life-cycle cost is variable cost of ₹2.40 crore plus R&D, design, fixed and withdrawal costs of ₹40 lakh, which is ₹2.80 crore. Dividing by 40,000 units gives ₹700 per unit.

  1. A₹ 700Correct
  2. B₹ 650
  3. C₹ 600
  4. D₹ 750

Explanation

Variable cost = 40,000 × 600 = ₹2,40,00,000. Other costs = 12,00,000 + 4,00,000 + 20,00,000 + 4,00,000 = ₹40,00,000. Total = ₹2,80,00,000; per unit = 2,80,00,000 / 40,000 = ₹700. The ₹650 option omits the fixed costs of ₹20 lakh... actually it leaves out withdrawal and design costs.

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