Life Cycle Costing – NBC Institute

PM – Nov 2016 – Q2 – Cost Management Strategies

Question requires explanation of Life Cycle Costing concepts and calculation of unit costs over 3-year product lifecycle for a CD manufacturer.

Question

Tadesco Limited manufactures Compact Disks. It is planning to introduce a new model and production will begin very soon. It expects the new product to have a life cycle of three years and the following costs have been estimated.

You are required to:
a. Explain Life Cycle Costing and state what distinguishes it from traditional costing technique. (10 Marks)
b. Calculate the cost per unit over the whole life cycle and comment on the price to be charged. (10 Marks)

Answer

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Tags: Cost Analysis, Life Cycle Costing, Manufacturing Costs, Product Life Cycle, Traditional Costing
Level: Level 2

Topic: Cost Management Strategies
Series: NOV 2016

MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

Question

XYZ Limited has just designed a new consumer product – XEE, which is expected to have a ten-year life cycle. Based on its market research, XYZ Limited’s Management has determined that the new product should be packaged in a 5kg-polymer sack with a selling price of N150 in the first four years, N120 in the next four years, and N90 per unit during the last two years.

Sales in units are expected as follows:

Year	Units
1	400,000
2	500,000
3	600,000
4	800,000
5	1,000,000
6	1,200,000
7	900,000
8	600,000
9	500,000
10	300,000

Variable selling costs are expected to be N10 per package throughout the product’s life. Annual fixed selling and administrative costs are estimated to be N1,200,000. XYZ Limited’s management desires a 25% profit margin on the selling price.

Required:
a. Compute the life cycle target cost of manufacturing the product (round up to the nearest kobo). (14 Marks)

b. If XYZ Limited anticipated that the new product will cost N90.50 per unit to manufacture in the first year, what are the maximum manufacturing costs in the following nine years? (3 Marks)

c. Suppose that the outcome of the market research indicates that expected manufacturing cost per unit over the product life cycle is N89.90, what actions would the company take to reduce this cost? (3 Marks)

(Total 20 Marks)

Answer

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Tags: Cost Management, Life Cycle Costing, Target costing
Level: Level 1

Topic: Costing Techniques
Series: NOV 2015

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

Question

Julmat Limited, a manufacturing company, has developed a new product that requires an initial capital investment of N5m. At the end of the product’s life, the capital equipment is expected to have a value of N3m. Julmat Limited requires an Annual Rate of Return (ARR) of 20% on its average investment on products of this type. The new product has an expected life of one year before it will be replaced by a more advanced product.

Production
The new product will be manufactured in batches of 1,000 units using a just-in-time production system.

The first batch is expected to incur a direct labour cost of N100,000, but a 75% learning curve is expected until the cumulative production equals 30 batches.

Thereafter, each batch is expected to incur the same direct labour cost as that of the 30th batch.

The expected direct materials cost for the first batch is N50,000. However, an experience curve is expected to apply to the first 10 batches produced; thereafter, no further savings in material costs per batch are expected.

Other production costs are expected to be N10,000 per batch.

Sales
Sales of the new product are expected as follows for each of the four stages of the product life cycle:

Stage	Units Sold	Selling Price per Unit (N)
Introduction	10,000	120
Growth	30,000	100
Maturity	60,000	80
Decline	30,000	50

Required:
a. Prepare calculations to show the total direct labour cost of the product for each of the four stages of the product life cycle. (6 Marks)
b. Assuming that there is no experience curve in relation to the product’s direct material cost, prepare a statement that shows the profitability of the new product for each of the four stages of the product life cycle individually and in total for the product’s life. (5 Marks)
c. Assuming that the direct material experience curve applies, calculate the average direct material cost per batch that must be incurred in order for the company to meet its ARR target over the life cycle of the product. (4 Marks)
d. Discuss the concept of life cycle costing and its effect on product pricing strategies at different stages of the product life cycle. Use the Julmat Limited scenario to illustrate your answer. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: ARR, Financial Performance, Learning Curve, Life Cycle Costing
Level: Level 2

Topic: Costing Systems and Techniques
Series: NOV 2018

PM – Nov 2016 – Q2 – Cost Management Strategies

Question requires explanation of Life Cycle Costing concepts and calculation of unit costs over 3-year product lifecycle for a CD manufacturer.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Analysis, Life Cycle Costing, Manufacturing Costs, Product Life Cycle, Traditional Costing
Level: Level 2

Topic: Cost Management Strategies
Series: NOV 2016

MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

Question

Sales in units are expected as follows:

Year	Units
1	400,000
2	500,000
3	600,000
4	800,000
5	1,000,000
6	1,200,000
7	900,000
8	600,000
9	500,000
10	300,000

Required:
a. Compute the life cycle target cost of manufacturing the product (round up to the nearest kobo). (14 Marks)

b. If XYZ Limited anticipated that the new product will cost N90.50 per unit to manufacture in the first year, what are the maximum manufacturing costs in the following nine years? (3 Marks)

(Total 20 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Management, Life Cycle Costing, Target costing
Level: Level 1

Topic: Costing Techniques
Series: NOV 2015

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

Question

Production
The new product will be manufactured in batches of 1,000 units using a just-in-time production system.

The first batch is expected to incur a direct labour cost of N100,000, but a 75% learning curve is expected until the cumulative production equals 30 batches.

Thereafter, each batch is expected to incur the same direct labour cost as that of the 30th batch.

Other production costs are expected to be N10,000 per batch.

Sales
Sales of the new product are expected as follows for each of the four stages of the product life cycle:

Stage	Units Sold	Selling Price per Unit (N)
Introduction	10,000	120
Growth	30,000	100
Maturity	60,000	80
Decline	30,000	50

Answer

Find Related Questions by Tags, levels, etc.

Tags: ARR, Financial Performance, Learning Curve, Life Cycle Costing
Level: Level 2

Topic: Costing Systems and Techniques
Series: NOV 2018

Question Tag: Life Cycle Costing

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PM – Nov 2016 – Q2 – Cost Management Strategies

Question requires explanation of Life Cycle Costing concepts and calculation of unit costs over 3-year product lifecycle for a CD manufacturer.

MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

PM – Nov 2016 – Q2 – Cost Management Strategies

Question requires explanation of Life Cycle Costing concepts and calculation of unit costs over 3-year product lifecycle for a CD manufacturer.

MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

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PM – Nov 2016 – Q2 – Cost Management Strategies

Question requires explanation of Life Cycle Costing concepts and calculation of unit costs over 3-year product lifecycle for a CD manufacturer.

You're reporting an error for "PM – Nov 2016 – Q2 – Cost Management Strategies"

MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

You're reporting an error for "MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques"

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

You're reporting an error for "PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques"

PM – Nov 2016 – Q2 – Cost Management Strategies

Question requires explanation of Life Cycle Costing concepts and calculation of unit costs over 3-year product lifecycle for a CD manufacturer.

You're reporting an error for "PM – Nov 2016 – Q2 – Cost Management Strategies"

MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

You're reporting an error for "MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques"

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

You're reporting an error for "PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques"

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Customer

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