Design and launch of a new product or service

Full Answer Section

     

• Variable Cost: App development costs. This is a variable cost as it fluctuates based on the number of features developed and hours spent on development. It is considered controllable as the team can manage the scope and resources allocated to development. This cost is classified as overhead as it supports multiple products or services.

Note: While app development costs might seem like direct costs, in this case, they are classified as overhead because they support multiple potential apps or digital products. Importance of Cost Classification Accurately identifying and classifying costs is crucial for pricing the app, budgeting for development, and making informed business decisions. By understanding the cost structure, we can determine the app's profitability and adjust pricing or features accordingly.  

Sample Solution

     

Our team is tasked with developing and launching a subscription-based wellness app that offers personalized fitness plans, nutrition guidance, and mental health support. The app will utilize AI to provide tailored recommendations based on user data.

Cost Identification

• Fixed Cost: Office rent. This is a fixed cost as it remains constant regardless of the number of app downloads or subscriptions. It is considered non-controllable as it's determined by the lease agreement. This cost is classified as overhead as it cannot be directly traced to the production of the app or the generation of revenue.