Life-cyde product costing, Activity-based costing OPQ Products makes digital watches. OPQ is preparing a product-ife cyde budget for a new a watch, SIEKO 6. Development on the new watch is to start shortly. Estimates for SIEKO 6 are as follows: Life-cyde units manufactured and sold Seling prices per watch Life-cyde costs R&D and Design Costs Manufacturing Variable cost per watch Variable cost per batch Watches per batch 400,000 $ 40.00 $1,000,000.00 $ 15.00 $ 600.00 500 $ 1,800,000.00 Fixed Costs Marketing Variable cost per watch Fixed costs $3.20 $ 1,000,000.00 Distribution Variable cost per batch Watch per batch Fixed costs $ 280.00 160 $ 720,000.00 $1.50 Customer-service cost per watch Ignore the time value of money. 1. Calkulate the life cyde costs and the budgeted life-cyde operating income for the new watch. 2. What percentage of the budgeted total product life-cyde costs will be incurred by the end of the R&D and design stage?

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Chapter20: Activity-based Costing (abc)
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3. An analysis reveals that 80% of the budgeted total product life-cyde costs of the
new watch will be locked in at the R&D and design stages. What are the
implications for managing SIEKO 6's costs?
4. OPQ's Market Research Department estimates that reducing SIEKO 6's price by
$3.00 will increase life-cycle units sales by 10%. If unit sales increase by 10%,
OPQ plans to increase manufacturing and distribution batch sizes by 10% as
well. Assume that all variable costs per watch, variable costs per batch, and
fixed costs will remain the same. Should OPQ reduce SIEKO 6's price by $3.00?
Show your calculation.
Transcribed Image Text:3. An analysis reveals that 80% of the budgeted total product life-cyde costs of the new watch will be locked in at the R&D and design stages. What are the implications for managing SIEKO 6's costs? 4. OPQ's Market Research Department estimates that reducing SIEKO 6's price by $3.00 will increase life-cycle units sales by 10%. If unit sales increase by 10%, OPQ plans to increase manufacturing and distribution batch sizes by 10% as well. Assume that all variable costs per watch, variable costs per batch, and fixed costs will remain the same. Should OPQ reduce SIEKO 6's price by $3.00? Show your calculation.
Exercises on Life Cycle Costing
Life-cyde product costing, Activity-based costing
OPQ Products makes digital watches. OPQ is preparing a product-life cyde budget for a
new a watch, SIEKO 6. Development on the new watch is to start shortly. Estimates
for SIEKO 6 are as follows:
Life-cydle units manufactured and sold
Seling prices per watch
Life-cyde costs
R&D and Design Costs
Manufacturing
Variable cost per watch
Variable cost per batch
Watches per batch
Fixed Costs
400,000
$ 40.00
$ 1,000,000.00
$ 15.00
$ 600.00
500
$1,800,000.00
Marketing
$3.20
$ 1,000,000.00
Variable cost per watch
Fixed costs
Distribution
$ 280.00
160
Variable cost per batch
Watch per batch
Fixed costs
$ 720,000.00
$1.50
Customer-service cost per watch
Ignore the time value of money.
1. Calculate the life cyde costs and the budgeted life-cyde operating income for the
new watch.
2. What percentage of the budgeted total product life-cyde costs will be incurred by
the end of the R&D and design stage?
Transcribed Image Text:Exercises on Life Cycle Costing Life-cyde product costing, Activity-based costing OPQ Products makes digital watches. OPQ is preparing a product-life cyde budget for a new a watch, SIEKO 6. Development on the new watch is to start shortly. Estimates for SIEKO 6 are as follows: Life-cydle units manufactured and sold Seling prices per watch Life-cyde costs R&D and Design Costs Manufacturing Variable cost per watch Variable cost per batch Watches per batch Fixed Costs 400,000 $ 40.00 $ 1,000,000.00 $ 15.00 $ 600.00 500 $1,800,000.00 Marketing $3.20 $ 1,000,000.00 Variable cost per watch Fixed costs Distribution $ 280.00 160 Variable cost per batch Watch per batch Fixed costs $ 720,000.00 $1.50 Customer-service cost per watch Ignore the time value of money. 1. Calculate the life cyde costs and the budgeted life-cyde operating income for the new watch. 2. What percentage of the budgeted total product life-cyde costs will be incurred by the end of the R&D and design stage?
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