3.3 The implications of life-cycle costing Pricing
§ Pricing decisions can be based on total life-cycle costs rather than simply the costs for the current period.
Test your understanding 11
The following details relate to a new product that has finished development and is about to be launched.
DevelopmentLaunchGrowthMaturityDecline
Time periodFinished1 year1 year1 year1 year
R&D costswww.Examw.com
($ million)20
Marketing costs
($ million)5430.9
Production cost
per unit ($)1.000.900.800.90
Production
volume (millions)15104
The launch price is proving a contentious issue between managers. The marketing manager is keen to start with a low price of around $8 to gain new buyers and achieve target market share. The accountant is concerned that this does not cover costs during the launch phase and has produced the following schedule:
Launch phase:$ million
Amortised R&D costs(20÷4)5.0
Marketing costs5.0