Accounting · Relevant Costing and Decision Making
It is now the start of Year 2. Unexpectedly, a competitor launched a similar product. Fit Co will launch its fitness monitor at $75, selling 100,000 units in Year 2 and 200,000 units in Year 3. Year 2 costs are $7.55m (including $0.16m R&D and $0.8m design sunk in Year 1) and Year 3 costs are $14.78m. Abandonment phase costs are zero. Which statement is correct?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The product should not be sold in Year 2 as a loss would be made, but launched in Year 3 when expected revenue of $15m would exceed the costs of $14.78m
- 2The product should be abandoned since $75m revenue in Year 2 is less than the Year 2 costs of $75.5m
- 3The product should be continued since the lifecycle revenue of $22.5m is more than the remaining lifecycle costs of $22.33m✓
- 4The product should be abandoned since the lifecycle revenue of $22.5m is less than the total lifecycle costs of $24.69m
Correct answer
The product should be continued since the lifecycle revenue of $22.5m is more than the remaining lifecycle costs of $22.33m
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