Bunch Company Is Considering the Production of a New Product

question 104

Multiple Choice

Bunch Company is considering the production of a new product.Bunch Company has the following data available:
$\begin{array}{ll}\text { Expected product life } & 4 \text { years } \\\text { Expected sales (units) over product life } & 2,000 \\\text { Variable production costs } & \$ 42 \text { per unit } \\\text { Variable selling costs } & \$ 16 \text { per unit } \\\text { Annual fixed production costs } & \$ 15,000 \\\text { Annual fixed selling costs } & \$ 5,000 \\\text { Research and development costs } & \$ 184,000\end{array}$
What is the total cost of the product over the product life cycle?

• A) $116,000
• B) $196,000
• C) $264,000
• D) $380,000

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Definitions:

Double Diminishing-Balance

A method of accelerated depreciation that doubles the standard depreciation rate.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the decrease in value due to wear and tear, age, or obsolescence.

Double Diminishing-Balance

A method of accelerated depreciation which calculates depreciation at twice the rate of the straight-line depreciation method on the remaining book value each year.

Depreciation Expense

An accounting method of allocating the cost of a tangible asset over its useful life, representing how much of an asset's value has been used.