Bunch Company is considering the production of a new product.Bunch Company has the following data available:
$\begin{array}{ll}
\text { Expected product life } & 4 \text { years } \
\text { Expected sales (units) over product life } & 2,000 \
\text { Variable production costs } & \$ 42 \text { per unit } \
\text { Variable selling costs } & \$ 16 \text { per unit } \
\text { Annual fixed production costs } & \$ 15,000 \
\text { Annual fixed selling costs } & \$ 5,000 \
\text { Research and development costs } & \$ 184,000
\end{array}$
What is the total cost of the product over the product life cycle?
A) $116,000
B) $196,000
C) $264,000
D) $380,000

Question

Quizplus · Accepted Answer

The total cost of the product over its life cycle includes variable production costs, variable selling costs, fixed production costs, fixed selling costs, and research and development costs. Calculating each:- Variable production costs: $2,000 \text{ units} \times \$42/\text{unit} = \$84,000$- Variable selling costs: $2,000 \text{ units} \times \$16/\text{unit} = \$32,000$- Annual fixed production costs over 4 years: $4 \times \$15,000 = \$60,000$- Annual fixed selling costs over 4 years: $4 \times \$5,000 = \$20,000$- Research and development costs: \$184,000Adding these costs together: \$84,000 + \$32,000 + \$60,000 + \$20,000 + \$184,000 = \$380,000.

Bunch Company Is Considering the Production of a New Product