Calculate the cost per unit looking at the whole lifecycle

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Reference no: EM13557934

A company manufactures MP3 players. It is planning to introduce a new model and development will begin very soon. It expects the new product to have a life cycle of 3 years and the following costs have been estimated.

Units manufactured and sold

Year 0

Year 1

25,000

Year 2

100,000

Year 3

75,000

Price per unit

 

$90

$80

$70

R&D costs

$850,000

$90,000

-

-

Production costs

Variable cost per unit

 

 

$30

 

 

$25

 

 

$25

Fixed costs

 

$500,000

$500,000

$500,000

Marketing costs

Variable cost per unit

 

 

 

$5

 

 

$4

 

 

$3

Fixed costs

 

$300,000

$200,000

$200,000

Distribution costs

Variable cost per unit

 

 

 

$1

 

 

$1

 

 

$1

Fixed costs

 

$190,000

$190,000

$190,000

Customer service costs per unit

 

$3

$2

$2

Required

a) Explain life cycle costing and state what distinguishes it from more traditional management accounting techniques.

b) Calculate the cost per unit looking at the whole lifecycle and comment on the price to be charged.

Reference no: EM13557934

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