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ACCA Applied Skills · Performance Management · Life-cycle costing

A company's traditional costing system reports profit only for each accounting period. Which of the following is a benefit of using life-cycle costing instead for a new product?

Life-cycle costing lets the business assess a product's total profitability across its whole life, including research, design and development costs incurred before production starts, which period-based reporting often leaves out. It does not guarantee recovery each period or cut costs automatically.

  1. AIt ensures that non-production costs are ignored when pricing
  2. BIt guarantees the product will recover its costs in every period
  3. CIt allows the total profitability of the product over its whole life to be assessed, including costs before production beginsCorrect
  4. DIt reduces the total costs of the product automatically without management action

Explanation

Period reporting often excludes pre-production costs such as research and development from product profitability. Life-cycle costing accumulates all costs from design to disposal, so the overall lifetime return can be judged. It does not guarantee period recovery nor reduce costs by itself.

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