Originally Posted by BGTV8

I understand exactly these circumstances ............ and I run my own business and I have been in competitive motorsport for nearly 50 years and have made and offered for sale various components over the journey. I have put my money right where my mouth is.

From an accounting viewpoint, R&D as a sunk cost is not an accurate statement as it is "sunk" only if epxensed to Profit and Loss. It can (in Australia at least, subject to Accounting Board standards) also be capitalised and then the CAPEX amount amortised against subsequent unit production.

In either case, someone has still outlaid the hard-$'s (the investment).

You seem to be advancing the case that the cost has to be expensed (sunk) and therefore the price should only reflect the marginal cost of unit production plus margin and I respectfully disagree. The choice - in the case of capitalised R&D is the unit volume over which amortisation occurs.

Asserting that the only R&D treatment is to expense it is analogous to having your cake and eating it too.

I invite you to consider the point from the investors perspective.

If the R&D has been expensed, then the business is down $xK and it is legitimately entitled to set a price that recovers its cost over projected production volumes, failing which the business runs at a loss and that has only one end point. If a business gets its costing wrong, the consumer benefits on price and the manufacturer goes bust so the consumer bears the risk of no follow-on service or warranty.

If the R&D cost has been capitalized and carried as an asset on the balance sheet, and subject to amortization over likely sales volumes, then the business is similarly entitled to set a price that reflects the unit cost of production over likely volume plus unit amortization.

The R&D money has been spent .... and in either case, revenue needs to cover it.

Revenue is unit sales value times number of sales ..... and both require a conscious decisions to establish. In one case, pricing needs to take account of the product line starting with a negative cost base (includes sunk cost) to which is added unit cost of production for projected sales and in the other case, the pricing inputs are marginal cost of unit production plus amortisation of capitalized R&D over projected production volumes.

Sunk cost is still a cost and cannot be ignored which seems to be the argument you are advancing.

All I can see is that you are disagreeing with VooDoo's pricing because you view it as "excessively expensive".

I'm very happy for you be say it is too expensive, in which case the consequence is don't pay the price and do something else (like purchase another product or invest in your own R&D and prototype(s)) but to drive an argument that it should be cheaper because sunk cost should be ignored for pricing purposes is wrong.