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CMA Final · Strategic Cost Management · Product Life Cycle Costing

A firm finds that about 70% of a product's life cycle cost is committed during design, although only about 10% has been spent by then. What is the main management implication?

Cost reduction effort should focus on the design stage. Most life cycle cost is committed by design decisions even though little cash has yet been spent, so changes made early are cheapest and most effective, while later control can influence only the remaining small share.

  1. ACost reduction effort should concentrate on the design stage, where cost is determinedCorrect
  2. BCost control should be deferred until the production stage
  3. CDesign costs should be ignored as sunk
  4. DOnly the decline stage offers scope for reduction

Explanation

Costs are largely locked in at design even if cash is spent later, so influence over cost is greatest early. Techniques such as target costing and design for manufacture exploit this. Deferring control to production forfeits most savings.

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