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Oria Software Ltd, a computer software company, is developing a new accounting package, “Future Accounting”. The following are the budgeted amounts for the product over a four-year product life-cycle:
| Year | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 |
|---|---|---|---|---|---|
| Estimated quantity in units | 3,500 | 5,000 | 2,000 | 500 | |
| GH¢ | GH¢ | GH¢ | GH¢ | GH¢ | |
| Research & Development costs | 360,000 | ||||
| Design costs | 240,000 | 250,000 | |||
| Production costs: | |||||
| Variable cost per unit | 42 | 35 | 35 | 40 | |
| Fixed costs | 150,000 | 150,000 | 120,000 | 100,000 | |
| Marketing costs: | |||||
| Variable cost per unit | 40 | 35 | 10 | 22 | |
| Fixed costs | 30,000 | 20,000 | 12,000 | 15,000 | |
| Distribution costs: | |||||
| Variable cost per unit | 20 | 22 | 18 | 10 | |
| Fixed costs | 50,000 | 60,000 | 40,000 | 30,000 | |
| Customer service costs: | |||||
| Variable cost per unit | 8 | 12 | 14 | 10 | |
| Fixed costs | 80,000 | 85,000 | 45,000 | – |
To be profitable, Oria Software Ltd must generate revenues to cover costs for all six business functions taken together and, in particular, its high non-production costs. The company has therefore proposed a selling price of GH¢250 per software over the entire product life cycle.
Required:
i) Explain lifecycle costing and identify TWO (2) benefits Oria Software Ltd will derive from using lifecycle costing. (3 marks)
ii) Calculate the cost per software taking into account the entire lifecycle and comment on the proposed selling price. (7 marks)
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Oria Software Ltd, a computer software company, is developing a new accounting package, “Future Accounting”. The following are the budgeted amounts for the product over a four-year product life-cycle:
| Year | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 |
|---|---|---|---|---|---|
| Estimated quantity in units | 3,500 | 5,000 | 2,000 | 500 | |
| GH¢ | GH¢ | GH¢ | GH¢ | GH¢ | |
| Research & Development costs | 360,000 | ||||
| Design costs | 240,000 | 250,000 | |||
| Production costs: | |||||
| Variable cost per unit | 42 | 35 | 35 | 40 | |
| Fixed costs | 150,000 | 150,000 | 120,000 | 100,000 | |
| Marketing costs: | |||||
| Variable cost per unit | 40 | 35 | 10 | 22 | |
| Fixed costs | 30,000 | 20,000 | 12,000 | 15,000 | |
| Distribution costs: | |||||
| Variable cost per unit | 20 | 22 | 18 | 10 | |
| Fixed costs | 50,000 | 60,000 | 40,000 | 30,000 | |
| Customer service costs: | |||||
| Variable cost per unit | 8 | 12 | 14 | 10 | |
| Fixed costs | 80,000 | 85,000 | 45,000 | – |
To be profitable, Oria Software Ltd must generate revenues to cover costs for all six business functions taken together and, in particular, its high non-production costs. The company has therefore proposed a selling price of GH¢250 per software over the entire product life cycle.
Required:
i) Explain lifecycle costing and identify TWO (2) benefits Oria Software Ltd will derive from using lifecycle costing. (3 marks)
ii) Calculate the cost per software taking into account the entire lifecycle and comment on the proposed selling price. (7 marks)
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