Life Cycle Costing Essay Example for Free

Life Cycle Costing Essay It expects the new products to have a life cycle of 3 years and the following costs have been estimated. Particulars| Year 0| Year 1| Year 2| Year 3| Units manufactured and sold| | 25,000| 100,000| 75,000| Price per unit| | ? 90| ? 80| ? 70| Research and Development 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 Cost| | ? 300,000| ? 200,000| ? 200,000| Distribution Cost| | | | | Variable cost per unit| | ? 1| ? 1| ? 1| Fixed Cost| | ? 90,000| ? 190,000| ? 190,000| Customer service cost per unit| | ? 3| ? 2| ? 2| Required to calculate the cost per unit looking at the whole lifecycle and comment on the price to be charged. Question 3 Fjalar AS, a software company developing a new accounting package, â€Å"General Ledger†. The following are the budgeted amounts for General Ledger over a five-year product life cycle: Particulars| Year 1 2| Year 3 to 5| | | One-time set-up Cost| Cost per package| Research Development Cost| ? 240,000| | | Design Cost of process| ? 160,000| | | Production Cost| | ? 100,000| ? 25| Marketing Cost| | ? 0,000| ? 24| Distribution Cost| | ? 50,000| ? 16| Customer service Cost| | ? 80,000| ? 30| For strategic reasons, Fjalar AS have chosen to â€Å"skim the market† by charging higher price to customers eager to try General Ledger when it first comes out, and lower prices to customers who are willing to wait. The projected selling price per package and sales quantity in units is given below: Particulars| Year 3| Year 4| Year 5| Selling price per package| ? 600| ? 480| ? 400| Sales quantity in units| 5,000| 4,000| 2,500| You are required to calculate the life cycle c ost per unit and its operating profit.