Delcom ltd is planning to introduce a new product. Market research information suggest that the product should sell 100,000 units over its lifecycle at a price of Ksh 420 per unit. The company seeks to make a mark up of 40% of product cost. Life cycle costs of the product will be as follows:

Sh. Sh.

Design and

development

costs. 10,000,000

Marketing

and

distribution

costs. 5,000,000

Manufacturing

cost per unit -. -

Direct materials 50. -

Direct labour. 60. -

Variable

production

overhead. 60. -

Fixed

production

overheads 30. 200

End of life costs 4,000,000

Required:

1. The lifecycle cost per unit.
2. The products cost gap.
3. The management accountant estimates that if the company spends additional sh.1, 000,000 on design, manufacturing cost per unit could be reduced. Compute the maximum manufacturing cost per unit that will be tolerated if the company was to earn the required mark up.
4. To manage cost effectively the company should emphasis on cost management at the planning and design stage explain the decision s that can be made at the planning and the design stage which can affect the cost of product and reduce the cost gap.