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CMA Final · Strategic Cost Management · Asset Life Cycle Costing

A firm applies life cycle costing to an asset. Which statement about its use in decision making is correct?

Asset life cycle costing evaluates all costs over the asset's whole life, including acquisition, operation, maintenance and disposal, usually discounted for time value. It therefore does not simply choose the lowest purchase price, because running and disposal costs can outweigh any initial saving.

  1. AIt considers only costs from the purchase date to the start of production
  2. BIt ignores disposal and decommissioning costs because they occur late
  3. CIt evaluates all costs across the asset's life, including acquisition, operation, maintenance and disposal, often on a discounted basisCorrect
  4. DIt requires that the cheapest purchase price always be selected

Explanation

Asset life cycle costing captures total cost of ownership from acquisition to disposal, usually discounted for time value. The cheapest purchase price may carry much higher running costs, so it is not always chosen.

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