Reference no: EM132855078
Question - A company is planning a new product. Market research information suggests that the product should sell 10,000 units at $21.00/unit. The company seeks to make a mark-up of 40% product cost. It is estimated that the lifetime costs of the product will be as follows:
-Design and development costs $50,000
-Manufacturing costs $10/unit
-End of life costs $20,000The company estimates that if it were to spend an additional £15,000 on design, manufacturing costs/unit could be reduced.
Required -
a) What is the target cost of the product?
b) What is the original lifecycle cost per unit and is the product worth making on that basis?
c) If the additional amount were spent on design, what is the maximum manufacturing cost per unit that could be tolerated if the company is to earn its required mark-up?
d) Discuss the flaws in using life cycle costing as a long-term costing strategy?
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