A manufacturing company which produces a range of products has developed a budget for the life-cycle of
Question:
A manufacturing company which produces a range of products has developed a budget for the life-cycle of a new product, Pique. The information in the following table relates exclusively to product Pique:
2019 | 2020 | 2021 | 2022 | 2023 |
$ per unit | $ per unit | $ per unit | $ per unit | |
Direct materials | 7.40 | 7.30 | 7.30 | 7.60 |
Direct Labour | 7.10 | 7.10 | 7.40 | 7.40 |
Variable production costs | 5.60 | 5.80 | 5.90 | 5.90 |
Machine hours | 6 | 6 | 6.5 | 6.5 |
Total $ | Total $ | Total $ | Total $ | Total $ |
Design costs | 800,000 | |||
Depreciation costs | 500,000 | 400,000 | 320,000 | 256,000 |
Selling & distribution | 600,000 | 750,000 | 780,000 | 400,000 |
Decommissioning costs | 20,000 | |||
Production and sales units | 300,000 | 420,000 | 440,000 | 220,000 |
The company’s total fixed production overheads are budgeted to be $72 million each year and total machine hours are budgeted to be 96 million hours in years 2020-2021, with these fixed production overheads estimated to increase by 5% and machine hours estimated to decrease by 3% in 2022 and remain stable into 2023.
The company absorbs overheads on a machine hour basis.
Required: What is the budgeted life-cycle cost per unit for the Pique?
Expert Answer:
