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Lifecycle Costing

ACCA · Question 20 · Lifecycle Costing

Section B - Case 1: AeroYield

AeroYield is a technology startup developing specialized drones for the agriculture sector to monitor crop health. The company is preparing to launch its new model, the 'AgriScout'. Market research indicates that customers are willing to pay $8,000 for the AgriScout. AeroYield's investors require a profit margin of 25% on the selling price.

The current estimated production cost for the AgriScout is $6,400 per unit.

At which stage of the product lifecycle is AeroYield most likely to incur the highest proportion of its total lifecycle costs for the AgriScout?

Answer options:

A.

Introduction phase

B.

Growth phase

C.

Maturity phase

D.

Design and Development phase

How to approach this question

Recall the concept of 'committed costs' in lifecycle costing. Decisions made during design dictate the materials, manufacturing processes, and ultimately the majority of the costs.

Full Answer

D.Design and Development phase✓ Correct
A key concept in lifecycle costing is that a very high proportion (often 80-90%) of a product's total lifecycle costs are committed (locked in) during the design and development phase. Once the design is finalized, it is very difficult and expensive to make significant cost reductions during the production phases.

Common mistakes

Confusing 'incurred costs' (cash paid out, often highest in maturity due to volume) with 'committed costs' (locked in during design). The question implies cost commitment impact.
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