12.19 Life-cycle product costing, activity-based costing.
(35–40 min)
1
The budgeted life-cycle operating income for the new watch MX3 is €1,852,500 as shown below.
Year 1
(1)
Year 2
(2)
Year 3
(3)
Life cycle
(4) = (1) + (2) +
(3)
Revenues €45 × 50,000; €40 × 200,000;
€35 × 150,000
€2,250,000 €8,000,000 €5,250,000 €15,500,000 RD and Design costs
900,000 100,000 0
1,000,000 Manufacturing costs Variable €16 × 50,000; €15 × 200,000;
€15
×
150,000 800,000 3,000,000 2,250,000 6,050,000 Batch €700 × ab c 87,500 240,000 180,000 507,500
Fixed
600,000 600,000 600,000 1,800,000 Marketing costs Variable €3.60 × 50,000; €3.20 × 200,000;
€2.80
×
150,000 180,000 640,000 420,000 1,240,000
Fixed
400,000 300,000 300,000 1,000,000 Distribution costs Variable €1 × 50,000; €1 × 200,000;
€1
×
150,000 50,000 200,000 150,000 400,000 Batch €120 × def Fixed
240,000 240,000 240,000 720,000 Customer service costs Variable €2 × 50,000; €1.50 × 200,000;
€1.50 × 150,000 100,000 300,000 225,000 625,000 Total costs
3,387,500 5,770,000 4,490,000 13,647,500 Operating income
€(1,137,500) €2,230,000 €760,000 €1,852,500 ab c ÷ 500 = 300 def
Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 2 Budgeted product life-cycle costs for RD and design €1,000,000 Total budgeted product life-cycle costs €13,647,500 Percentage of budgeted product life-cycle costs incurred at the end of the RD and design stages = 1, 000, 000 13, 647,500 = 7.33% 3 An analysis reveals that 80% of the total product life-cycle costs of the new watch will be locked in at the end of the RD and design stages, when only 7.33% of the costs are incurred (requirement 2). The implication is that it will be difficult to alter or reduce the costs of MX3 once Saturniens finalises the design of MX3. To reduce and manage total costs, Saturniens must act to modify the design before costs get locked in. 4 The budgeted life-cycle operating income for MX3, if Saturniens reduces its price by €3, is €1,251,000 as shown below. This is less than the operating income of €1,852,500 calculated in requirement 1. Therefore, Saturniens should not reduce MX3’s price by €3. Share with your friends: |
