Rainbow Company is considering the production of a new product.Rainbow Company has the following data available:
$\begin{array}{ll}
\text { Expected product life } & 5 \text { years } \
\text { Expected sales (units) over product life } & 2,000 \
\text { Variable production costs } & \$ 42 \text { per unit } \
\text { Variable selling costs } & \$ 16 \text { per unit } \
\text { Annual fixed production costs } & \$ 15,000 \
\text { Annual fixed selling costs } & \$ 5,000
\end{array}$
What is the total fixed cost of the product over the product life cycle?
A) $20,000
B) $100,000
C) $116,000
D) $464,000

Question

Quizplus · Accepted Answer

The total fixed cost over the product life cycle is calculated by adding the annual fixed production costs and the annual fixed selling costs, then multiplying by the expected product life: $(\$15,000 + \$5,000) \times 5 = \$100,000.$

Rainbow Company Is Considering the Production of a New Product