Ski Valet provides materials that let people teach themselves how to snow ski. It has six different skill-level programs
Each one includes visual and audio learning aids along with a workbook that can be submitted to the company for grading and evaluation purposes, if the person so desires.
The accounting system of Ski Valet is very traditional in its reporting functions with the calendar year being the company's fiscal year. It includes an abundance of information that can be used for various reporting purposes.
The company has found that any new idea soon runs its course with an effective life of about three years. Therefore, the company is always in the development stage of some new program. Program development requires experts in the area to provide the know-how of the item being developed and a development team that puts together the video, audio, and workbook materials. The actual costs of reproducing the packages are relatively inexpensive when compared to the development costs.
Required:
How might product life-cycle budgeting aid the company in improving its overall operations?
Answer: Because the product life cycle for Ski Valet extends over several traditional accounting periods, it is critical for the company to consider a planning concept that evaluates each one of its products during its entire life cycle. Procedures that highlight an entire life cycle can include items for overall profitability, and which products might be repeated in a few years. With a large portion of their expenses in the development area, life-cycle budgeting can assist in predicting the sales needs for the entire life of a product.
It is probably more important to evaluate company performance on a product basis rather than year to year. Life-cycle budgeting would allow the company to compare products to each other rather than just comparing one year to the next.
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Which of the following statements accurately describes the basis of activity-based costing?
A) Activities simply sustain a facility's general manufacturing process. B) Activities refer to batch-level costs incurred to support the production of each different type of product. C) Activities consume facility-level costs. D) Activities consume resources and products consume activities.