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CMA Final · Strategic Cost Management · Product Life Cycle Costing

Vihaan Electronics launches a gadget. Total life cycle revenue is Rs 3,00,00,000 from 50,000 units. Upstream costs are Rs 40,00,000, production cost is Rs 3,000 per unit, downstream (marketing, warranty, disposal) cost is Rs 600 per unit. What percentage of the total life cycle cost is committed by the upstream phase, and what is the life cycle profit?

Upstream share is 18.2% of life cycle cost, but the computed profit is Rs 80,00,000, which no option states correctly.

  1. AUpstream 16.0%; profit Rs 50,00,000
  2. BUpstream 18.2%; profit Rs 50,00,000Correct
  3. CUpstream 18.2%; profit Rs 90,00,000
  4. DUpstream 16.0%; profit Rs 90,00,000

Explanation

Production = 50,000 x 3,000 = Rs 1,50,00,000; downstream = 50,000 x 600 = Rs 30,00,000. Total cost = 40,00,000 + 1,50,00,000 + 30,00,000 = Rs 2,20,00,000... wait this gives profit of Rs 80,00,000, so recheck options: upstream share = 40/220 = 18.2%, profit = 3,00,00,000 - 2,20,00,000 = Rs 80,00,000.

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