ExpertMedium2 marksShort Answer
ACCA · Question 16 · Specialist cost and management accounting techniques
Section B - Case 1: VoltCell Manufacturing
VoltCell is a heavy manufacturing and tech company that produces advanced solid-state batteries for electric vehicles. The company is evaluating a new battery model, the 'QuantumCell', which has an expected life cycle of 4 years.
The estimated costs over the life cycle are as follows:
- Research and Development: $4,500,000
- Product Design and Testing: $1,500,000
- Manufacturing costs: $250 per unit
- Marketing and Distribution: $2,000,000 total over 4 years
- End-of-life recycling and disposal costs: $1,000,000
VoltCell expects to produce and sell a total of 100,000 units of the QuantumCell over its 4-year life cycle.
Calculate the total life cycle cost per unit for the QuantumCell. (Enter the numerical value only)
Section B - Case 1: VoltCell Manufacturing
VoltCell is a heavy manufacturing and tech company that produces advanced solid-state batteries for electric vehicles. The company is evaluating a new battery model, the 'QuantumCell', which has an expected life cycle of 4 years.
The estimated costs over the life cycle are as follows:
- Research and Development: $4,500,000
- Product Design and Testing: $1,500,000
- Manufacturing costs: $250 per unit
- Marketing and Distribution: $2,000,000 total over 4 years
- End-of-life recycling and disposal costs: $1,000,000
VoltCell expects to produce and sell a total of 100,000 units of the QuantumCell over its 4-year life cycle.
Calculate the total life cycle cost per unit for the QuantumCell. (Enter the numerical value only)
How to approach this question
1. Sum all the fixed/total costs over the life cycle (R&D, Design, Marketing, End-of-life).
2. Divide this total by the expected total volume (100,000 units) to find the fixed cost per unit.
3. Add the variable manufacturing cost per unit ($250).
Full Answer
Total non-manufacturing costs = R&D ($4.5m) + Design ($1.5m) + Marketing ($2.0m) + End-of-life ($1.0m) = $9,000,000.
Non-manufacturing cost per unit = $9,000,000 / 100,000 units = $90 per unit.
Total life cycle cost per unit = Manufacturing cost ($250) + Non-manufacturing cost ($90) = $340.
Common mistakes
Forgetting to include end-of-life costs, or only calculating the manufacturing cost.
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