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MC Question 1

A manufacturing company which produces a range of products has developed a budget for the life-cycle of a new product, P. The information in the following table relates exclusively to product P:
Lifetime totalPer unit
Design costs $800,000
Direct manufacturing costs $20
Depreciation costs $500,000
Decommissioning costs $20,000
Machine hours 4
Production and sales units 300,000

The company’s total fixed production overheads are budgeted to be $72 million each year and total machine hours are budgeted to be 96 million hours. The company absorbs overheads on a machine hour basis.

What is the budgeted life-cycle cost per unit for product P?

A. $24·40
B. $25·73
C. $27·40
D. $22·73

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